With buyer demand weakening and property values falling, buyers using bridging loans or guarantors risk being trapped in costly arrangements, with one accountant warning owners could pay the price for years.
One accountant has warned of the dangers of entering the property market using guarantors or bridging loans when sentiment is soft, and values are declining.
As bridging loan numbers surged, Praedium Partners accountant Jeremy Iannazzelli said buyers could be forced to sell their previous home below their expected price.
“If they’ve taken a bridging loan in this market, it’s probably the worst environment to do so. It’s not because of the price movements; it’s because of the lack of motivation for buyers to be in the market,” Iannazzelli told REB.
“That’s placing significant stress on anybody who already has bridging finance or who was considering getting bridging finance.”
Bridging loans, in which a lender guarantees a portion of the total loan amount to let the borrower buy a new property before selling their old one, have grown in popularity as a way to enter the property market.
Non-bank specialist lender Bridgit, which specialises in bridging loans, recorded a 168 per cent increase in loan submissions between FY2024–25 and FY2025–26.
With a predetermined timeline set as part of the loan, Iannazzelli said vendors could be forced to transact on less favourable terms for their old property if they couldn't settle before the date.
“If the bank doesn’t see that the property is sold, they’ll advise the individual that they either A, have to pay back the bridging portion of the finance, or B, they’ll force the sale of the home to pay themselves back.”
“Which means that the vendor may no longer be in the position to take the price that they want; they’ll be forced to take the position the bank needs.”
He said he had seen a recent incident where a client was stuck in limbo, repaying the bridging finance while servicing the loan for the new property, which forced them to take a significantly lower price for their old home.
Keeping guarantors on the hook longer
Similarly, he warned that purchasing with a guarantor also carried significant risks in a downturning market.
With recent data showing that mum-and-dad guarantors could be on the hook for 11 years before their children had enough equity to untether them from the loan, Iannazzelli said parents would be more likely to push back on the idea.
“You’ll find that moms and dads are going to be hesitant and less forthcoming to assist their children with a guarantor loan, because no parent in their right mind will guarantee a deposit and a loan for their child when the property’s going down in value,” he said.
“With a declining property market, that means that as the kids are paying down the debt, thinking they’re doing the right thing to reduce the leverage, you’ve got the price falling with it. So it’s this cat-and-mouse game.”
Recent modelling by HomeLoanRates found that a 10 per cent fall on the average $610,000 first home buyer loan would bring the home value down to $578,000, leaving the owner $32k in negative equity.
The modelling showed that if that buyer then defaulted and the bank sold immediately, the guarantors would be left covering approximately a $49,000 shortfall after costs.
Iannazzelli said being saddled with the looming extra debt could make it harder for parents to plan for retirement and their financial future.
“Mum and dad are potentially locked from selling their home because they’re guarantors on the loan, which they probably thought would only be anywhere between three to five years.”
“But the longer that the home is secured against an asset they’ve guaranteed for their child, the more it restricts them from being able to create plans for their future.”
“The longer you leave your financial circumstances in someone else’s hands, you’re just adding further risk.”
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