Bridging Finance Vs Relocation Vs IP Switch

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Looking to buy another property (PPOR) and then sell existing PPOR. In a scenario where one has 30% equity in their existing property (value 600k) and some cash savings, what would be the best option to explore if buying another property of approx same value and then selling existing.

I have read about bridging finance and this may not be possible due to lending criteria and high costs.

What about a relocation loan? How does this differ to bridging? I don't believe my current lender offers this but I know St George and Bank SA do.

Is is a better option to buy the new property as an IP, perhaps rent for a while 6-12 months, then sell existing PPOR in that period then switch the IP to PPOR?

 

[Corey Batt]

Relocation loan is a pretty name for a bridging loan.

Costs can be expensive and brutal.

A simpler option if possible is to draw out the available equity, make the new purchase and then either rent out property 1 or 2, whilst living in the other. Once you sell off property 1 you can then use the excess funds to put down against the new PPOR loan. There are tax issues with this of course.

Alternatively you can try snag the new PPOR on a subject to sale clause, which isn't that uncommon in the 600k+ PPOR range.

 

[Brady]

It's wil be dependant on your personal circumstance, serviceability.

But I find that it's best to keep out of bridging if possible. That way you're in control rather then the bank. With some creative banking most of the time it's possible to purchase the new property without having to set up bridging terms. Buying as IP for 6-12 whilst selling existing property will keep you out of bridging in most cases.

Otherwise if bridging is the only option then you have a few options. CBA is very good with bridging as you don't have to show that you can service the 'peak' debt, just showing that you can service the end debt along with a mitigance to showing you could afford the debt during bridging. eg - $800k peak debt @ 5% for 12months bridging thats $40,000 of interest so if you have that available in a lump sum which can be lent pending LVR would be fine. Noted that could be less then $40k if your income can service some of the interest repayments.

 

[burning]

Looking to buy another property (PPOR) and then sell existing PPOR.

We've recently been through a similar scenario. Perhaps our strategy could help you make a decision.

We had quite stringent requirements for our next home and a limited budget - so for this elusive perfect house, we wanted to be in the best position to make an offer - to have pre-approved finance and avoid the 'subject to sale' condition.

The bank would not approve finance for us to buy our next home while renting out our current PPOR.

In the case we found our perfect house before we sold our PPOR, we successfully obtained pre-approval for bridging finance. It was through a lender that evaluated based on 'end' debt (not peak), with I/O for the bridging duration, and included a buffer to cover the interest for one side. But we are very happy that we didn't follow through with this.... the decision maker for us is that we just didn't know how long it was going to take to sell our current PPOR, or have any guarantee that it would sell for the price we were budgeting on.

We instead opted to temporarily rent while selling our house. It is more expensive overall as the weekly rent is more than the overall loan repayments, plus we will have to deal with breaking our lease at some point. But it does allow us the extra time to find the house we want and get pre-approved for 'normal' finance.

Currently, our PPOR is under offer, but the fat settlement lady has not yet sung. Also, we haven't found a house that meets our requirements to make an offer.

 

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We instead opted to temporarily rent while selling our house. It is more expensive overall as the weekly rent is more than the overall loan repayments, plus we will have to deal with breaking our lease at some point. But it does allow us the extra time to find the house we want and get pre-approved for 'normal' finance.

Wow thanks for the info Brady and Cjay and sharing your experience burning. I really would prefer to buy before I sell as looking at the market and area of interest it could take a while to find our next property (12+ months) and I've seen people stuck in this situation in a moving market.

Subject to sale is a possibility but I'd hate to miss out on something because of this clause. What about a longer settlement (e.g 3 months) with no subject to sell clause with the fall back being renting one of the properties if I cant achieve a sale on my current PPOR in this period, is this something the banks can accommodate (two possible scenarios)?

 

[Peter_Tersteeg]

The ideal scenario is obviously to sell your existing house before purchasing the new one. The biggest problem is you can be left with nowhere to live.

In the event you can't sell, bridging finance is rarely the optimal way to go. I've helped dozens of clients in this scenario, I've only ever had one situation where it was more viable to use bridging finance.

In most cases the numbers work well enough that it's possible to complete the new purchase and retain the existing house. The exact solution can depend on affordability and equity, but it generally is possible. This in turn gives you time to sell your existing house and still turn a profit.

 

[Corey Batt]

Wow thanks for the info Brady and Cjay and sharing your experience burning. I really would prefer to buy before I sell as looking at the market and area of interest it could take a while to find our next property (12+ months) and I've seen people stuck in this situation in a moving market.

Subject to sale is a possibility but I'd hate to miss out on something because of this clause. What about a longer settlement (e.g 3 months) with no subject to sell clause with the fall back being renting one of the properties if I cant achieve a sale on my current PPOR in this period, is this something the banks can accommodate (two possible scenarios)?

The latter one sounds like an option, I've found vendors to be very amenable offering 3 month unconditional, but of course always depends on the personal circumstances.

Check your serviceability with your broker/bank to see if you can purchase and rent current PPOR, that way you know the option is available.