# Australia’s property downturn puts home buyers in double mortgage bind Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-09-01 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: Australian Housing Market: Bridging Loan Dilemma Meta Description: With falling prices and longer bridging loan durations, sellers facing financial stress. Lenders benefit while borrowers navigate tough market. URL: https://financedigest.com/australias-property-downturn-puts-home-buyers-in-double-mortgage-bindhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-09-01t071050z1lynxmpei801e9rtroptp4australia-economy-houseprices-downturn-1736815309762-compressed.jpg) By Byron Kaye SYDNEY (Reuters) -Australia’s housing market downturn is squeezing many home sellers into a double bind: They’ve taken out a mortgage for a new home but are holding out for a good deal on their old place, forcing them also to hold a bridging loan to cover their previous mortgage. And with prices now falling at their fastest pace in four decades, a sharp reversal from the 25% annual price rises seen just a year ago, the durations of those bridging loans are doubling or even quadrupling from their typical three-month span. This has been good news for many lenders in an otherwise shrinking mortgage market, where [falling house prices](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") and rising interest rates are driving away business, but it means more financial stress for borrowers still braving the market. I think there are people who have been caught out,” said Julie Buchanan, a seller’s agent in Sydney who recently extended a marketing campaign for a high-end property to three months from six weeks, due to lukewarm [buyer interest](https://www.financedigest.com/uk-buyers-lead-interest-in-megacity-istanbul-accounting-for-21-51-of-all-property-enquiries.html "UK BUYERS LEAD INTEREST IN ‘MEGACITY’ ISTANBUL, ACCOUNTING FOR 21.51% OF ALL PROPERTY ENQUIRIES"). A lot of them have had to have their [price expectations](https://www.financedigest.com/ecb-survey-shows-rising-inflation-expectations-despite-energy-price-falls.html "ECB survey shows rising inflation expectations despite energy price falls") revised,” she said. If they can’t get the [price then bridging finance](https://www.financedigest.com/g7-finance-chiefs-agree-on-russian-oil-price-cap-but-level-not-yet-set.html "G7 finance chiefs agree on Russian oil price cap but level not yet set") is something they use to get them over the line. Then they’re potentially [holding two properties.”](https://www.financedigest.com/brexit-and-the-property-market-what-does-the-future-hold.html "Brexit and the property market: what does the future hold?") Most properties still sell within the three-month timeframe of a standard bridging loan: The average [home in Australia’s major cities took 31 days to sell in August](https://www.financedigest.com/august-the-most-popular-month-to-start-a-holiday-home-search-reveals-portal.html "AUGUST THE MOST POPULAR MONTH TO START A HOLIDAY HOME SEARCH REVEALS PORTAL"), while sellers may also factor in a contract settlement time of about six weeks. But that was an increase of 63% since last November, according to CoreLogic, and [home sellers would likely expect the market to grow even more sluggish after four straight months of interest rate](https://www.financedigest.com/beat-the-exchange-rate-and-buy-that-dream-holiday-home-by-paying-in-pounds.html "Beat the exchange rate and buy that dream holiday home – by paying in pounds! ") hikes, with more expected – the next on Sept. 6. Joe Bennett, a senior lending relationship executive at bridging lender ASCF, said inquiries had risen with [interest rates](https://www.financedigest.com/ecb-raises-interest-rates-again-cuts-bank-subsidies.html "ECB raises interest rates again, cuts bank subsidies"), and the average term of a loan written by his company had ballooned from three months to between six months and a year. Historically when [markets are hot they only want that loan for three months because they knew – and it was realistic to assume – that they could list their property](https://www.financedigest.com/2017-spanish-property-market-gems-kyero-com-gazes-into-the-crystal-ball.html "2017 Spanish property market gems – Kyero.com gazes into the crystal ball") this Saturday and have it sold by the following Saturday,” Bennett said. “That’s not happening now.” LAST RESORT NO MORE Aaron Bassin, CEO of bridging finance provider Bridgit Financial Services, said his company plans to [double its longest loan from six months to a year](https://www.financedigest.com/cepsa-to-nearly-double-investments-over-next-3-years-as-profit-soars.html "Cepsa to nearly double investments over next 3 years as profit soars"), due to customer demand. In case the [property market](https://www.financedigest.com/2018-property-investment-market-to-be-harder-but-more-rewarding-experts-reveal.html "2018 property investment market to be “harder but more rewarding,” experts reveal") continues to slow down, a longer duration product will be needed, and that’s something that we’re currently working on,” said Bassin. He added that August was a [record month for his company](https://www.financedigest.com/what-happens-if-a-company-doesnt-have-any-records-of-its-rd-activities.html "What happens if a company doesn’t have any records of its R&D activities?") for total loans. [Australia and New Zealand](https://www.financedigest.com/organic-expansion-to-run-through-the-australia-new-zealand-herbal-supplements-market.html "Organic Expansion To Run Through The Australia New Zealand Herbal Supplements Market") Banking Group Ltd, the country’s fourth-largest lender, recently doubled its maximum bridging loan from six months to a year, a spokesperson said, although they did not specify a reason. [Bridging loans](https://www.financedigest.com/common-uses-for-bridging-loans-and-what-youll-need-to-get-one.html "Common Uses for Bridging Loans and What You’ll Need to Get One") have typically been treated as a last resort by homebuyers because they effectively leave them with two mortgages at once – one for the property they are buying and one for the property they are trying to sell. Plus bridging loans carry [higher rates](https://www.financedigest.com/credit-suisse-offers-higher-deposit-rates-in-asia-to-woo-the-wealthy-sources.html "Credit Suisse offers higher deposit rates in Asia to woo the wealthy – sources") because they are short term and require rapid turnaround. But bridging loan providers say their volumes have jumped, even as [retail banks](https://www.financedigest.com/uk-retail-banks-is-irrelevance-curtailing-opportunity.html "UK Retail Banks: Is Irrelevance Curtailing Opportunity?") warn of rising competition and shrinking business in mortgage lending overall. Government [figures released on Thursday showed that the value of new housing loans](https://www.financedigest.com/new-figures-show-31-increase-in-loan-applications-as-economists-look-for-growth-in-consumer-confidence.html "New figures show 31% increase in loan applications, as economists look for growth in consumer confidence") fell 8.5% in July, nearly double the 4.4% decline the month before. The data does not break out separate figures for bridging loans. While four months of interest rate [hikes](https://www.financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talk.html "UK economy’s unexpected bounce spurs more BoE rate hike talk") forced all lenders to put up their mortgage rates, they may also have allowed bridging loan providers to narrow the gap between their rates and those of standard mortgage loans, making their products more palatable for borrowers. We put our [rates up and braced for a slowdown](https://www.financedigest.com/hopes-of-slowdown-in-rate-hikes-bolster-shares-ahead-of-u-s-gdp.html "Hopes of slowdown in rate hikes bolster shares ahead of U.S. GDP"), but it’s still full steam ahead,” said Jack O’Reilly, CEO of funding.com.au, a bridging loan specialist whose monthly loan volumes are up 50% from a year ago. You would think it would slow down because things are pricier, but I would [say the increase in activity in this space](https://www.financedigest.com/virgin-orbit-says-space-startup-in-talks-with-potential-investors.html "Virgin Orbit says space startup in talks with potential investors") is continuing. (Reporting by Byron Kaye; Editing by Edmund Klamann) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---