Bridging finance Australia: how it works and what it costs

Bridging finance is a short-term loan that covers the gap between buying one property and selling or refinancing another. Aurelius Private are private lending brokers; we arrange commercial-purpose bridging loans across a large panel of private lenders, we do not lend our own money.

The situation is familiar. A deal has to settle before the money to pay for it has arrived. You have found the next site, or won it at auction, but the property that funds it has not sold yet. Or a bank refinance is coming, and it will land weeks after the deadline. That gap is what a bridge is for.

What bridging finance actually is

A bridge carries you across the space between two events. On one side is the thing you need to pay for now. On the other is the money that will clear it: a sale, a refinance, or a project reaching a stage where longer-term debt takes over. The bridge sits in between and buys you time. It is one of the oldest tools in private lending, and the market behind it is now big enough that ASIC tracks private credit as its own sector.

One point to be clear on. The bridging we arrange is for a commercial or business purpose only: a commercial property, a development site, or business borrowing secured against property. Bridging on a home you live in, or on a residential investment property, is consumer lending under the National Consumer Credit Protection Act and sits with a licensed consumer broker. Our affiliated brokerage, Aurelius Capital, handles that side. Everything below is about commercial-purpose bridging.

How a bridge is put together

Two numbers frame most bridging deals. Peak debt is the total you owe at the top of the bridge: any loan still on the property you are selling, plus the new purchase and its costs. End debt is what is left once the exit happens and the sale proceeds come in. A good bridge is built so the end debt is comfortable, or gone.

Most bridges are interest only, and the interest is usually capitalised. That means you make no monthly repayments. Each month the interest is added to the loan, and the whole lot clears at the exit. That matters when you are already carrying one property and buying another, because it keeps your cash free until the sale lands. Terms are short. Usually up to twelve months, sometimes a little longer for a build.

Open and closed bridges

A closed bridge has a known end date. You have exchanged on the property that provides the exit, so the lender can see exactly when the money arrives. That certainty usually earns a sharper rate. An open bridge has no fixed settlement date, just a maximum term. It is used when the exit is likely but not yet locked, and because there is more risk for the lender, it can price higher and rely on a more conservative view of the sale value.

What people use bridging for

The reasons repeat, and the clock is usually ticking:

• Buying the next site before the current one settles
• Settling an auction purchase inside the contract deadline
• Releasing equity from one property to move on another
• Covering the gap while a bank refinance grinds through its process
• Funding a purchase or a settlement that has to happen this week, not next month

The exit is real and not far away, but the timing does not line up. A bank moves on its own calendar. A bridge moves on yours. This is what bridging finance is built for.

What bridging finance costs

A bridge is priced on where the lender sits on the title, the same as any private loan. Secured by a first mortgage, a bridge usually sits between about 8.5 and 10 percent. If it goes behind an existing loan as a second mortgage, there is more risk and it costs more, often into the teens. The stronger your equity position and the clearer your exit, the closer to the bottom of the band you land. All of it sits above bank pricing by design, and it moves with the RBA cash rate like the rest of the market.

The rate is not the whole cost. Expect an establishment or assessment fee, legal costs, a valuation fee, and a broker fee. When a lender offers the deal, the broker gets a term sheet with the full breakdown: the gross loan, every fee, the capitalised interest, and the net figure that actually lands at settlement. Read the net number. That is what you walk away with, and what the exit has to cover.

How much you can borrow

The number that governs a bridge is the LVR, the loan against the value of the security. Most private lenders bridge to about 75 percent on a first mortgage, and some stretch to 80 percent on the right deal. When the bridge is secured across two properties, the lender looks at the combined position, not just one title.

This is where people get caught out. The LVR has to cover everything: the new money, the fees, the interest you are capitalising, and any debt still sitting on the security. It is the total owing against the value, not just the fresh loan. Build the bridge with that in mind and there are no surprises at settlement.

How fast it settles

Speed is the point of a bridge. A well-prepared deal can settle inside a week, and a first-mortgage bridge with a clean valuation can move in a few days. The valuation is usually the thing that sets the pace.

To move fast, have these ready before you call a broker:

• A council rates notice for each property
• A current mortgage statement on anything already financed
• The contract on the property you are buying
• A rough sense of the sale value on the property you are exiting
• Your exit: the sale, the refinance, or the date the money lands

When a bridge is the wrong tool

Bridging is short-term money, priced above the banks, and it works when the exit is close and certain. It is the wrong tool when the exit is vague. If the property being sold is priced on hope, or the refinance depends on numbers that have not landed yet, a bridge can turn into an expensive problem when the term runs out and nothing has cleared it. A straight answer up front is worth more than an approval. If a bridge is not the right structure, we will say so, and point you at what is, whether that is development finance or a different position entirely.

A recent deal

A developer had exchanged on a second site and needed to settle in nine days. The property that was funding it was under contract, but that sale would not settle for another six weeks. Good deal, real exit, wrong timing. We arranged a $1.8M first-mortgage bridge secured across both properties, with the interest capitalised so there were no repayments during the term. It settled in six days on a single valuation. When the first sale came through six weeks later, the proceeds cleared the bridge and the developer kept the new site. A bank could not have moved inside that window. A private lender, with good security and a clear exit in front of them, did.

Start with the scenario

If you have a deal that has to settle before your money arrives, the quickest way to know what is possible is to put the situation in front of a broker who can take it to the right lender. Start your application or get in touch, and we will tell you what we can arrange, and roughly what it will cost, the same day.