Bridging mortgage

How does a bridging mortgage work?

It happens to plenty of people: you find your new home while your old one is still on the market. The equity you will release on the sale is not available for your purchase yet. That is exactly the gap a bridging mortgage closes. You temporarily borrow the amount of your expected equity, and as soon as your old home is sold and transferred, you repay the bridging loan in one go with the proceeds.

Calculating your maximum bridging mortgage

As long as your old home has not sold, providers keep some margin. A common rule of thumb:

appraised value × 90% − remaining mortgage debt

To make it concrete: your home is worth € 400,000 and there is still € 300,000 of mortgage on it. You then land on a bridging amount of roughly € 400,000 × 90% − € 300,000 = € 60,000. If your home has already been sold subject to conditions, you can usually count on 95% to 100% of the sale price minus your debt.

Pros and cons

Pros

• You can buy your new home without first selling your old one.
• The interest on the bridging loan is usually tax-deductible.
• The loan is repaid automatically once your old home is transferred.

Cons

• Temporarily higher costs: you briefly pay for two homes at once.
• The interest is usually higher than on a regular mortgage.
• Risk if your old home sells for less than expected.
• Limited term (usually a maximum of two years) and a one-off arrangement fee.

Term, costs and where to arrange it

In practice a bridge runs from a few months to a year, with two years as the maximum. You pay a one-off arrangement fee and sit with temporarily higher monthly costs during the bridge. You almost always arrange the bridging loan with the same provider that handles your new mortgage. Run the terms and the risks past an adviser beforehand.