The hot property market in Auckland is resulting in a new form of risky borrowing; open-ended bridging finance.

"Closed-ended" bridging finance is traditionally used when there is a short, known gap between the purchase of a new family home and the sale of current one, and a fixed date at which the borrower knows the bridging finance will be paid off.

It's expensive, short-term financing the banks aren't that keen on, so it falls to the likes of finance companies, arranged by mortgage brokers.

But so hot is the market that home-owners looking to trade up do not fear being stuck with two homes if they can't sell.

What they fear is that if they sell their current home before buying a new one, they could find themselves trapped out of the market by rapidly-rising prices.

That means they are happy to have open-ended bridging finance where there's no agreed end date for the bridging finance to be repaid.

Mortgage lending finance company Cairns Lockie said: "We are receiving an increasing number of enquiries about open ended bridging. This is where you have decided on the new property that you wish to purchase, but have not sold your existing one."

"More people are looking at this type of finance, because if you sell your family home, it can be difficult to find something that you are entirely happy with, in a limited timeframe. The solution is to bridge the purchase and sale period - to enable you to purchase exactly what you want, with a reasonable amount of time then available to sell your existing property."

Mortgage brokers Campbell Hastie from the Go2Guys said it was becoming a more common strategy, and he backed it. "I'm suggesting, if you own a house already, and you want to move for whatever reason- an extra bedroom, or a different school zone, then what you should probably do in the current markets is buy a place first, and sell your place second."

"If you sell first, you are a cashed up buyer, but if you fail to find a place, or beat off other bidders, then it is capital gains down the drain."

"It's no problem to sell a house in this market, but there is to find one, and to beat off the competition," he said.

Hastie said he had seen the results of selling first, and then being unable to buy.

"I have a friend in this situation," he said. "He sold his place for $650,000. The thing is, it would be worth $800,000 now. In a year, he has gone backwards to the tune of $150,000."

The return he has made on the money in the bank is tiny compared to the amount prices had risen while he was looking for a new place.

Open-ended bridging finance was not the only option in this situation. It was sometimes possible to cut deals with banks, depending on the size of the loan, and whether the income of the borrowers, and the rent they could charge on their old home, was sufficient to service the loan.

William Cairns from Cairns Lockie said the cost of its open-ended bridging finance, which was secured against both the property that was bought and the one that was to be sold, was 11.95 per cent.

Often people liked the fact they then had no pressure on selling the house in a short time-frame.

"That's really nothing for a month, if you are getting a higher price for your home," he said.

The higher interest rates charged on bridging finance send a signal to the borrower that it is higher-risk debt than ordinary home loans, and if they are not able to sell, then they will end up with a lot of debt to service.