Upgrading

Ready to move up the property ladder? Whether you're outgrowing your current home or simply looking for something new, upgrading can be exciting — but it also comes with a few extra steps. 

Open Bridging Finance

Open bridging finance is when you haven’t yet sold your current home—or it’s under offer but not yet unconditional. In this case, the bank needs to be confident that you can afford to hold both properties at the same time.

• More equity helps: Generally, banks require strong equity in your existing home—often 50% or more—to approve this. Spare cash also helps.

• Market conditions matter: In quieter markets (like when average days to sell go beyond 40), getting open bridging finance approved becomes more challenging.

• LVR rules apply: Banks typically allow 80% LVR on each property. Sometimes it's split—80% on the new home and 70% on the existing—to allow flexibility in case it needs to be rented out.

• Bank policy differences: Some banks take a hard line—even if your property could be rented and fits within their credit policy, they may still decline bridging finance simply because it’s labelled as such. That’s where having an experienced adviser like LifeDirect makes a difference—we can help you find the right lender with the right fit.

Most banks will provide bridging finance for up to six months, usually at a floating rate, though some may offer a short-term fixed rate. It’s also common to apply for interest-only repayments during this time to ease cashflow—just make sure to request it during your application.

To apply, your current home typically needs to be listed for sale or at least have a registered appraisal from a real estate agent.

Closed Bridging Finance

This is a more straightforward option—closed bridging is when you’ve already sold your current home, the deposit has been paid, but the settlement dates don’t line up.

• This usually happens when you need to settle your new purchase before your current home settles, often to allow time to move, clean, or avoid overlapping logistics.

• Closed bridging loans still require credit approval and must generally be under 80% LVR across both properties to avoid low equity fees or exemptions.

• Even though the RBNZ exempts bridging loans from standard LVR restrictions, going over 80% can still bring added costs—especially once you factor in real estate fees, which can push your LVR higher than expected.

• It’s best to discuss this early in the process so we can get pre-approval and avoid time delays.

Keeping Your Current Home as a Rental

If the numbers stack up, many Kiwis choose to hold on to their first home and turn it into a rental instead of selling. This can be a great way to build long-term wealth and reduce stress during the move.

However, it’s worth thinking about:

• Emotional ties: It can be hard seeing your old home treated like a rental—especially if it was your first.

• Tenant quality: If you go down this path, a good property manager can make all the difference in protecting your asset.

• Tax efficiency: Some homeowners choose to sell the home into a Look-Through Company (LTC) after they move out. This allows them to reallocate more debt to the rental property (which is tax-deductible), and less to their new owner-occupied home.

Here’s a simplified example (for illustrative purposes only — speak to your accountant before acting):

By selling to an LTC, you can shift $300k more debt into a tax-deductible structure—meaning you may be able to offset that against rental income.

Note: As of 1 July 2024, the Bright-Line test has been shortened to 2 years for all residential property purchases—replacing the previous 5- and 10-year rules. That means if you sell a residential property after owning it for more than 2 years, you won’t generally be taxed on any capital gains.

Need help with bridging finance or exploring your options?
Talk to one of our LifeDirect mortgage advisers. We’ll guide you through it, help make sense of the bank policies, and make sure you’ve got the best strategy in place.