Next home buyer loan: bridging, buying before you sell, and moving house

Most people moving house are doing two deals at once, and the dates rarely match. If you sell first, you know exactly what you have to spend, but you might need somewhere to stay between settlements. If you buy first, you have a place to go, but you may be carrying two loans for a while.

Lenders deal with this in different ways. Some offer short term borrowing to cover the gap, often called bridging, with the sale of the old home paying it off. Others prefer that the sale is unconditional before they finalise the new loan. A mortgage broker can talk through which approach tends to suit which situation, and what each costs.

It also helps to talk about timing before you make an offer rather than after. A finance condition and a sale condition on the agreement both have dates attached, and a mortgage broker can help you see how those fit together so you are not forced into a corner.

Settled.govt.nz, the official guide to buying and selling, says there is no single right order, and that it comes down to how much uncertainty you are comfortable with. Selling first makes the budget clearer, then the settlement date on your own sale starts to close in, so some people ask for a longer settlement to give themselves time to find the next place. Buying first leaves more time to look, but the money for a deposit can still be tied up in the current home, and you can end up paying the holding costs on two properties, such as insurance, rates and utilities, as well as any bridging.

Bridging finance is short term lending for the gap between buying the next home and selling the one you live in. Sorted, the Retirement Commission's money guide, describes a bridging loan as a temporary way of paying for the new house while the existing one is still for sale. The usual way out is that sale. The proceeds are what the short term lending is repaid from.

The Settled.govt.nz guide says bridging can help when you buy before you sell, and it also says to look hard at the cost and the risks. You will usually pay the interest only until the current property sells, so for that stretch you are budgeting for two home loans, not one. If the sale takes longer than you expected, those costs keep running. If the home sells for less than you had planned, you can be left repaying a larger loan than you wanted.

A lender still has to be satisfied you can keep up the payments without substantial hardship. The Responsible Lending Code, published on Consumer Protection's site, says the checks can cover your income, your expenses and how likely the repayments are, and for bridging finance they can include the likely proceeds of a sale you intend to make. What any one lender asks for on top of that varies. This page does not quote interest rates, because they change often, and a broker or lender can tell you the current ones for your own situation.

A conditional offer means the sale and purchase agreement still has conditions to meet, each with a date. On Settled.govt.nz, common conditions include finance, a valuation, a building inspection, and the sale of your own property. An unconditional offer has none of those left. Settled recommends asking your lawyer or conveyancer to read the agreement, and any conditions, before you sign. Once the conditions are met, you are committed to complete the purchase.

The dates matter as much as the conditions. If a condition is not met by the day written into the agreement, the seller may be able to cancel. Extra time is not automatic. Your lawyer or conveyancer has to negotiate it, and both you and the seller have to sign the change. When finance is one of the conditions, the lender will usually want a copy of the agreement, and may also want a valuation, which you organise and pay for.

Settlement is a different date again. It is the day the rest of the price is paid, usually through the lawyers or conveyancers, and the day you get the keys. The deposit is separate, and it is due either when everyone has signed or when the agreement becomes unconditional, depending on what you agreed. If you are selling one home and buying another, either side can ask for settlement dates that fall on the same day. That can avoid a gap, but both deals still have to be ready, which is why it helps to agree the dates before the offer goes in.

Equity is what would be left if you sold the home and repaid what you still owe on it. That is the plain definition on Sorted. If you already own, that equity can go towards the deposit on the next place, which is one reason a next home buyer loan feels different from a first home loan.

It is not cash you can spend while you are still living there. Until the current home sells, or a lender agrees to lend against it, the equity stays in the property. The price you actually get, the cost of selling, and any break fee if a fixed term ends early all change what is left over. A lender will also look again at your income and your other debts, not only at the equity.

Some people do not sell. They keep the current home, rent it out, and buy another to live in. A lender then looks at both properties, and at any rent, which is a different conversation from a straight move. Borrowing more against a home you are keeping is covered on the top up page, and moving the loan to another lender is covered on the refinance page.

A broker or lender can look at the move as one plan rather than two separate applications. That usually means what the current home may sell for, what you still owe, when any fixed lending ends, and whether you want to buy first, sell first, or settle both homes on the same day. Sorted suggests talking this through with a lender or a mortgage broker before you buy, including where a bridging loan might be needed, so you can see what a lender would want in front of them.

Nothing on this page is a decision for you. Lending criteria differ from one lender to another, and the person you speak to should give you their own disclosure, including how they are paid. If you would like someone to get in touch, the short form is the place to start, and we pass your details to a broker or lender. There is no obligation to go ahead.

When you sell, the lender is repaid out of the sale price at settlement. If your loan has a fixed term still running, a break fee can apply, depending on your lender's terms and how rates have moved since you fixed. Some lenders allow the loan to be moved to the new property, which can avoid the fee, but that depends on the lender and the loan.

Whether you stay with your lender or move, the new loan will be assessed on today's income, today's debts and the value of the property you are buying. That is why it is worth getting a clear picture of both sides before you commit.

Moving between homes in the Waikato and the Bay of Plenty can mean moving between different kinds of property. If you are leaving a city home in Hamilton for a lifestyle block, or going the other way, or selling in Tauranga and Pāpāmoa to buy somewhere else, a lender will look at both properties as well as your income.

A property with a lot of land, a second dwelling or an unusual title may be looked at differently from a standard suburban house, so say what you are looking at when you get in touch.

If you are moving to a smaller town in the Waikato, such as Matamata, it is worth talking about the new location and the type of property as well as your equity. A mortgage broker can explain how that may affect the lending.