November cash rate: 5 tips before taking out a bridging loan

The Reserve Bank of Australia (RBA) today announced it will hold the cash rate at 4.35%. Despite headline inflation dropping to within the RBA’s target range for the first time since March 2021, underlying inflation (which strips out the biggest price swings) remains above the target band (currently at 3.5%). A big contributor to the drop in headline inflation was the temporary electricity bill rebates received by Australians from the federal government.

The recent inflation data has led Commonwealth Bank to be the final bank to change its prediction for a cash rate cut until next year.

Despite inflation proving to be sticky and homeowners having to tough out higher interest rates for longer, we are seeing a lot of movement in the market. This includes people purchasing their next homes.

According to Loan Market data, there has been a 21% increase in people purchasing their next home to live in over the first three quarters of this year compared to last.

When moving homes, it can be a challenge to line up the sale of your existing home with the purchase of the next. Because of this, bridging loans have become a popular choice. Bridging loans can be a useful tool to help smooth your transition between homes, however they can be expensive. So before you take out a bridging loan, here are some tips.

5 tips before taking out a bridging loan

  1. Calculate your equity: do you know how much equity you have to use toward the deposit for the new home? Your equity is the difference between the amount remaining on your loan and the current value of the property. 
  2. Find the right lender: many banks used to only offer bridging loans to existing customers. However, this has changed with many now looking to entice new customers. A broker can compare lenders and products to find one that suits your needs.
  3. Get pre-approval: check with your broker to understand how much you will likely be able to borrow for your next property and understand how much the repayments will be while you own two properties. This can help you budget and understand your price range.
  4. Have your home ready for sale: as soon as you are ready to start looking at properties, also make sure your home is ready to put on the market. Even if you don’t want to put it up for sale until you have purchased your next home, you can reduce the time to go on market, and potentially sell, by ensuring it is in a state you are happy to sell it in.
  5. Consider the purchase contract: when you have found a home you want to purchase it can be a good idea to include clauses in the contract to provide some protection. For example, if the seller will accept a 90-day settlement, you have more wriggle room to sell your property and minimise the time paying the bridging loan.

Bridging loans can be a gamechanger for some people looking to purchase their next home, however they aren’t for everyone. It is a good idea to talk to a broker to find out if it is right for you. We can talk through your situation and compare lenders to find the right solution for you.


Published: 5/11/2024

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