Selling vs buying property: Navigating borrowing power

By Christian Stevens - Flint Mortgage Brokers

Buying and selling property at the same time is one of the biggest financial decisions many Australians will ever make. It is also one of the most complex, particularly when it comes to how your borrowing power is assessed along the way.

The sequence you choose - whether selling first, buying first, or aiming for simultaneous settlement - will directly affect how much you can borrow, the strength of your loan application, and the amount of financial pressure you might experience.

If you are planning your next property move, it is critical to understand how lenders assess your position at each stage and how to structure your approach to avoid unnecessary stress.

Selling first: the safest way to protect your borrowing power

Selling your current property before buying your next is the most conservative approach. Once the sale is complete and settled, your existing mortgage is paid off and your equity is released, giving you a clean slate to work from.

This approach simplifies your borrowing position. Lenders only need to assess your income, expenses, and deposit for the new purchase. There is no overlap between loans, which often results in a stronger borrowing capacity and a smoother approval process.

However, selling first does require flexibility. You may need temporary accommodation or storage, and there is always the risk of being priced out if property values rise before you find your next home. Despite this, it remains the most straightforward strategy from a lending point of view.

Buying first: more control, but greater financial complexity

Buying a new home before selling your current one gives you more control over your next move. It allows you to take your time finding the right property without the pressure of having already sold. But it comes with added financial complexity.

If you buy first, lenders may require you to show that you can service both your existing mortgage and the new loan at the same time. That can significantly reduce your borrowing power, especially if your income or expenses are tightly balanced.

In these cases, a bridging loan may be necessary. Bridging finance is a short-term facility that allows you to purchase your next home while waiting for your current property to sell. You usually only pay interest during the bridging period, which is often capitalised into the loan. Once your home is sold, the proceeds are used to reduce the debt to your final loan amount.

Bridging loans require careful planning. They are best suited to borrowers with substantial equity in their current property - typically over 50 per cent - and confidence in the expected sale price. If your property takes longer to sell or sells for less than expected, the financial pressure can quickly escalate.

Simultaneous settlement: ideal but hard to pull off

Coordinating the sale of your current home with the purchase of your next so that both settlements occur on the same day is often seen as the perfect solution. In theory, it allows the proceeds of the sale to directly fund the new purchase without needing bridging finance or temporary accommodation.

While this approach can work well, it relies on tight timing and cooperation across multiple parties. Any delay in either transaction - from the buyer, seller, or lender - can throw off the entire plan. When it works, it is a smooth and efficient way to transition between homes. But when it does not, the consequences can be costly.

Buying with an extended settlement: a smart middle ground

One of the most effective - yet underused - strategies is negotiating a longer settlement on the property you are buying. Instead of the standard 30 to 42 days, pushing for a 90-to-120-day settlement can give you the breathing room to sell your current property first, while already having your next home secured.

This approach avoids the need for bridging finance and preserves your borrowing power, as lenders only need to assess you based on the final position once your sale completes. It also gives you time to prepare your current home for sale and run a proper campaign, rather than rushing to meet tight deadlines.

Not every vendor will accept an extended settlement, but many will if you are transparent, pre-approved, and flexible on other terms.

Your borrowing power is not fixed. It changes depending on the timing of your sale, the equity in your current property, and how you structure your move. Choosing the right sequence - sell first, buy first, or settle simultaneously - can make the difference between a smooth transition and a stressful scramble.

Before you make your next move, take time to model out each scenario, understand the lending implications, and speak with a broker who can help you navigate the process. With the right plan in place, you can manage your borrowing power confidently and make your property journey a success.

Christian Stevensis the founder of Flint - Australia's Leading mortgage Brokers. He is a five-time recipient of the Best Residential Broker in Australia and has been named Australian Broker of the Year three times. In 2024, Flint was recognised as the Leading Finance Brokerage in the country. Christian has helped thousands of Australians build wealth through property. His views are his own and do not constitute financial advice.