Risks of buying a property before selling your existing property

by Amrit Mathoda | April 10, 2025| Latest News

Deciding to purchase a new property before selling your existing one can be tempting, especially if you’ve found your dream home and don’t want to miss out. However, if the funds from your current property’s sale are needed to finance the new purchase, this can come with considerable financial and legal risks.

Uncertainty in the property market

The property market can be unpredictable, and there is no guarantee that your existing home will sell quickly or for the price you expect. If the market slows down, you could face delays in selling your home, or you may have to lower your asking price to attract buyers.

Increased pressure and potential for compromises when buying before selling

If you have already committed to buying a new property, and you are relying on the funds from the sale of your existing property, a deadline for your sale will have been determined. The urgency to sell prior to this deadline could leave you in a difficult financial position if you are unable to achieve the sale price you originally predicted. You may find yourself being forced to sell at a lower price than you had planned to avoid defaulting on the other property you have already purchased.

Buying before selling puts you under pressure to sell your current home quickly, often forcing you into a less favourable negotiating position. You may be tempted to accept a lower offer just to avoid paying two mortgages.  Additionally, if your property doesn’t sell within the desired timeframe, you might feel forced to compromise on other terms of the sale, such as settlement dates or conditions that would not typically be acceptable to you if you were not subject to the same pressures.

If a purchaser is aware of your urgency to sell, they could use this to their advantage in their negotiations with you, which could come at your detriment.

The cost of bridging finance can be expensive

Bridging finance is a short-term loan intended to help you “bridge” the financial gap between buying a new property and selling the existing one.  While bridging loans can be helpful, they come with higher interest rates compared to standard home loans and can also include higher fees payable to the lender to establish the loan. Additionally, you will be required to service two loans until your current property sells, which can put a significant strain on your finances, particularly if the sale is delayed.

Borrowing, taxation and financial risks

If your existing property has not sold and you are still servicing that mortgage, it can impact your ability to secure a new loan for the purchase of the new property. Lenders will take into account your existing financial commitments, and having two mortgages can reduce your borrowing power. Also, there can be tax implications if buying a property before selling your current property so it’s important to seek tax advice.

We have a dedicated and highly experienced property law team who can help you. For more information or to arrange a consultation with a lawyer, call us on 4651 4800.