What you need to know before moving up the property ladder – The Prosperity Project

The temptations of higher-value homes can lead property owners into risky financial situations. Photo / Ted Baghurst

Getting on to the property ladder is a huge achievement, but moving up to the next rung can also be fraught with challenges.

Squirrel mortgage adviser Kat McInnes told Nadine Higgins on The Prosperity Project podcast that many homeowners are surprised by how tricky it can be – sometimes exacerbated by their own decisions.

“What will happen more often is almost impulse buys. So, someone will get an idea that they might like to move and then they’ll fall in love with something,” she says.

That can put you in a vulnerable position, potentially requiring bridging finance to execute.

“Bridging is essentially short-term finance to allow you to settle on that new property when you haven’t yet sold yours,” McInnes says. “Closed bridging means your property has sold but you’ve got a gap in settlement dates. Open bridging is when you haven’t sold your property yet, but you do have your new property lined up – and that is pretty hard to get finance for these days.”

Securing it will depend on affordability assessments, and how highly leveraged you are.

“You’d probably expect to pay a percentage point above the floating rate – so not too bad. But typically, they [banks] would want to see no more than 70% [loan to value ratio] across both properties. If you’re fairly highly geared, that’s not going to be an option for you,” she says.

McInnes has first-hand experience of the stresses of buying before selling.

“All these things that I’ve said not to do, I did. We put an offer on a property subject to the sale of our current property, but we needed top dollar for our current property for this to work or it was all going to fall over. Thankfully, we got one offer – I think it was about $50 more than we needed. So, it all worked out okay, but it was so stressful.”

Listen to the full episode of The Prosperity Project for more

The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.

You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.