The cost of living and increased Australian interest rates are causing families to let go of homes they would traditionally have kept on as investment properties, when buying a new home.
Victorian families are increasingly seeking alternative ways to buy a home due to the skyrocketing cost of living and interest rate rises.
Melbourne-based Mortgage Choice broker David Thurmond said the last 24 months had seen a dramatic increase in demand for bridging finance, mostly from upsizing buyers aged 35 to 50 who have children.
It comes as Victoria’s auction market gears up for a pre-Christmas rush with 1422 homes set to go under the hammer this week, according to PropTrack, after the state recorded a 59 per cent clearance rate last week.
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Bridging loans typically offer credit to cover the time gap, usually less than 12 months, between homeowners purchasing a new abode before selling their existing residence.
Mr Thurmond said he had only written about 10 such loans during his first 15 years as a broker but that had boomed to 150 or so in the last five years.
Interest rate rises since the Covid pandemic hit, the burgeoning cost of living and the Victorian government’s higher land taxes, introduced in 2024, have meant that many families who would have traditionally kept their old home as investment property could no longer afford to do so, Mr Thurmond said.
“I think that the land tax issue is probably a 5 per cent justification versus 95 per cent being higher living expenses and lower borrowing capacity because of higher rates,” he added.
“I definitely think that higher interest rates have really stopped people from keeping their existing homes.”
Mortgage Choice broker David Thurmond says bridging loans have become far more popular in the last five years.
Mr Thurmond says home buyers should seek pre-approval for a bridging loan before buying a new abode, rather than doing things the other way around. Picture: Jake Nowakowski.
Ray White chief economist Nerida Conisbee said a large part of the reason for increasing demand for bridging loans had been a change in how badly lenders were rorting customers using the service historically.
“I reckon it’s an improvement in the offering of bridging finance,” she said.
“It used to be a very poor financial product and now what’s being offered is much more acceptable to people.”
The economist said a trend had emerged over the past 12 to 18 months of more acceptable bridging loan terms for borrowers.
Ray White chief economist Nerida Conisbee says that bridging loans nowadays tend to offer borrowers better terms than they did historically.
In November, a Mortgage Choice survey of 1000 Australians revealed 46 per cent were not familiar with bridging finance.
Mortgage Choice has also announced a new bridging loan, Freedom Move, in partnership with Athena Home Loans, which provides people with up to 12 months to sell their old property with no repayments on the bridge loan until settlement.
Mr Thurmond said it was important for people considering a bridging loan to organise pre-approval before buying a new home – which sounded like common sense but was not always front-of-mind for buyers.
Many Victorian homebuyers need to sell their existing abode before upgrading to a larger residence, in order to have enough money for a deposit.
“The other thing that we need to do is make sure that you’ve got your 10 per cent deposit for your purchase,” he said.
Many customers are equity-rich in terms of having $400,000 to $500,000 value in their home but do not possess the 10 per cent cash deposit needed to buy a new home, which could amount to a six-figure sum, he noted.
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