Bridging Loans Explained: What You Need to Know in NZ

Buying a new home before selling your current one can be stressful — especially when settlement dates don’t line up. This is where a bridging loan can help. In New Zealand, bridging finance is a common short-term solution that allows homeowners to buy their next property without having to wait for their existing home to sell.

If you’re upgrading, downsizing, or relocating, here’s what you need to know about bridging loans in NZ — including how they work, the risks involved, and whether they’re right for you.

What Is a Bridging Loan?

A bridging loan is a short-term loan that “bridges the gap” between buying a new property and selling your current one. It allows you to temporarily carry two properties (and two loans) at the same time.

Bridging loans are typically used when:

• You’ve found a new home but haven’t sold your current one yet

• Settlement dates don’t align

• You want to make an unconditional offer before selling

These loans are usually short-term — often 3 to 12 months.

How Bridging Loans Work in NZ

There are two main types of bridging loans in New Zealand:

1. Closed Bridging Loan

This is used when you have an unconditional sale agreement on your current home with a confirmed settlement date.

Because the bank knows exactly when the existing property will sell, closed bridging loans are considered lower risk and are easier to approve.

2. Open Bridging Loan

This applies when your current home is not yet sold.

Open bridging loans are higher risk for banks, so they come with stricter criteria, lower lending limits, and more conservative valuations.

How Are Bridging Loans Repaid?

Most bridging loans are interest-only during the bridging period. Once your existing home sells, the proceeds are used to:

• Repay the bridging loan

• Reduce your long-term mortgage on the new property

Interest rates on bridging loans are usually higher than standard home loans, reflecting the increased risk and short-term nature.

Key Risks to Be Aware Of

While bridging loans can be incredibly useful, they’re not suitable for everyone. Key risks include:

• Cash flow pressure: You may need to service interest on two loans at once

• Sale delays: If your current home takes longer to sell than expected, costs increase

• Price risk: If your home sells for less than anticipated, you may need to contribute extra funds

Because of these risks, banks assess bridging loan applications very carefully.

 When Does a Bridging Loan Make Sense?

A bridging loan can work well if:

• You have strong equity in your current home

• Your income comfortably supports interest payments

• The property market is active and your home is likely to sell quickly

• You want flexibility and certainty when buying your next home

If you’re stretching affordability or uncertain about sale timing, alternatives — such as aligning settlement dates or negotiating extended settlements — may be safer.

Final Thoughts

Bridging loans can be a powerful tool when used correctly, allowing you to move forward with confidence rather than missing out on the right home. However, they require careful planning, realistic timelines, and a clear exit strategy.

A mortgage adviser can assess whether bridging finance is appropriate for your situation, compare lender policies, and structure the loan to minimise risk and stress.

Because when it comes to bridging loans, the right advice can make the difference between a smooth transition — and an expensive mistake.