Bridging Loan – Finance £10k To £250m, Written Terms in 2 Hours
Get The Best Bridging Loan Deal With ABC Finance
Our experienced bridging loan experts can help you get the best deal quickly with no commitment fees or broker fees.
Over 30,000 loan-seekers helped
FCA Authorised – Fully regulated
Receive your funds in as little as 5 days
Market-leading interest rates
CeMAP Qualified Advisors
No Broker Fees
Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
Bridging loans are short-term, loans secured against property which are used to ‘bridge the gap’, or provide funding while waiting for another event to occur.
A bridging loan, also known as bridging finance, is a type of secured loan against property, with interest charged monthly on the money borrowed until the loan is repaid. The interest rate charged is based on the security property, loan to value and your circumstances.
The best deals are usually offered for loans against residential property at 50% loan to value (LTV) or below.
Read on and we'll guide you through the bridging loan process, how to borrow money this way and who to speak to if you're looking for the best deal.
What we cover in this article:
- What is a bridging loan?
- How do bridging loans work?
- What are the advantages of bridging loans?
- Who can borrow money using bridging finance?
- What interest rate will I pay on a property bridging loan?
- How much do they cost?
- How do they work?
- Bridging loan uses
- What are the different types of bridging loan?
- What are the alternatives to bridging loans?
- FAQs
What is a bridging loan?
A bridging loan is a type of short-term loan which is arranged for 1-18 months and is used to provide a fast cash injection while waiting for other funds.
They are a form of property finance that is used to bridge the gap between 2 events happening, such as purchasing one property, and another being sold.
Bridge loans, also known as bridging finance, were first offered in the 1960s by large banks and building societies to fund property purchases before the borrower’s existing property was sold.
Bridging loans are now a very popular form of finance and are offered by a wide range of specialist lenders such as Together Money, United Trust Bank and Shawbrook Bank.
The bridging loan market has grown to become a £4.8bn industry as of 2022 and is continuing to grow.
While this is a large number, the bridging market is still quite niche compared to the mortgage market which is currently a £1,613bn market.
What our expert says...
"Bridging finance allows you to raise funds quickly, securing your borrowing against a property or land. Bridging loan interest is expressed as a monthly rate rather than annually.
Bridge loans are often used to fund auction purchases, refurbishment projects or to purchase a property before selling an existing one."
Author: Gary Hemming CeMAP CeFA CeFA CSP
20+ years experience in bridging loans
How do bridging loans work?
A bridging loan allows you to borrow money quickly and are paid to you as a lump sum for a property purchase or refinance.
Once your bridging loan has been arranged, your interest charges are usually ‘rolled up’ into the loan, leaving you with no monthly interest payments to make. This is often also referred to as retained interest.
At the end of the loan term, the bridging loan is repaid in full, along with any interest and outstanding charges and the legal charge is removed from your property.
Repayment of a bridging loan is usually funded through the sale of your property or by taking out a remortgage. Your plan for repaying the loan is known as your exit strategy.
Loan to value (LTV) and equity are key to securing a bridging loan, with lenders focussing on these two points to assess new loans. Most lenders are happy to offer a maximum of 75% of the property value on a regulated bridging loan, although some will extend this to 80% for an unregulated bridge (a bridge loan that is not regulated by the Financial Conduct Authority (FCA). The LTV offered may be lower for a second charge bridging loan.
Are bridging loans a replacement for a mortgage?
Yes, a bridging loan is a replacement for a mortgage.
Bridging loans a short-term form of alternative form of funding that is used when a mortgage wouldn’t be available, but you need to borrow money against a property.
This can be because the property isn’t mortgageable , you need the funds to purchase a new property quickly or you have a short-term financial gap that needs to be filled, for example using a bridging loan for a house purchase before your existing home sells.
Is Property Investment the main reason for bridge loans?
Yes, property investment is the main reason for taking out bridging loans. This is true whether you’re financing an investment property, a buy-to-let property, or your own home.
This is because a bridging loan allows you to secure a property quickly, access funds efficiently, and add value through property refurbishment where it is needed, all while bridging the gap between the refinance to new mortgages or a property sale.
Bridging loan key product features
Key Features
Max LTV
Up to 85%
Interest rate
From 0.47% per month
Charge types
1st, 2nd & 3rd considered
Term
1-36 months (maximum 12 months for regulated bridging loans)
Interest type
Added to the loan, deducted or serviced
Completion timescale
5 days - 3 weeks
Criteria
Residential, commercial property or land acceptable
Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
Minimum applicant age 18 years - no maximum age
Available in England, Scotland, Wales and Northern Ireland
Adverse credit accepted (on a case by case basis)
We assess all bridging loans on an individual basis
What are the advantages of bridging loans?
The advantages of a bridging loan are:
Speed
They can be arranged very quickly; you can get a bridging loan in 5 days-2 weeks. Some even complete on the day of application, far faster than most alternatives to bridging loans.
The costs are falling
The bridge loan market is currently in a price war. Rates realistically start from 0.47%, with 0.43% available for select applications. The main drawback has historically been cost, although this is now becoming an advantage.
Flexibility
A bridging loan is far more flexible than mortgages and secured property loans.
No monthly payments
Where your bridging finance interest is rolled up or deducted, there are no monthly payments to make. This can be a major help to cash flow during a property refurbishment or marketing period.
A Bridging loan allows lending against unmortgageable properties
Bridging loans can be used to buy a property that you would otherwise be unable to borrow against.
What are the disadvantages of a property bridging loan?
The disadvantages of bridging finance are:
They add cost to a property transaction
No matter how cheap your loan is, it will still cost something. This will add a cost to your property transaction that must be considered. This is true of all loans, not just bridging loans.
Fees and charges
Comparing quotes from bridging loan lenders or brokers can be difficult. On top of the lender arrangement fee and interest payments, some lenders will charge additional ‘fund management’, ‘application’, ‘inspection’ or other fees. These can add up and mean that the lowest rate isn’t always the best option. When comparing bridging loans, you must consider all the costs to calculate the total cost rather than just the headline figures. As a leading bridging loan broker, we’ll happily assess this for you.
Problems with exit route
If you have problems with your method of repaying the loan, this can cause major issues as the end of the bridging loan approaches. If you are unable to repay the loan at the end of the term, you will have to refinance or pay the interest charges monthly. Although there is no guarantee your lender would allow you to do either, failure to do so can put your property and credit score at serious risk. Bridging finance is a short term finance solution, so it's important that you repay on time, or risk losing your property.
Who can borrow money using bridging finance?
Anybody can borrow money using these loans as long as they have a property with enough equity in it.
We can offer loans to individuals, partnerships, LLPs, Limited Companies, SPVs, Trusts and overseas borrowers.
Watch our bridging loan video
What interest rate will I pay on a property bridging loan?
Bridging loan interest rates are currently between 0.47-1.25% per month.
Interest rates on your loan can vary depending on how much equity you have in your property, the loan to value (LTV) required, if you take a fixed rate or variable rate product and whether you have bad credit.
In some cases, large bridging loans (those over £1,000,000) may get a better rate.
Whether a product is fixed rate or variable rate is often not published, so if this is important, ask your bridging lender or broker.
Variable interest rate see the monthly interest on your loan increase or decrease in line with changes in the Bank of England Base Rate.
The biggest cost associated with a bridging loan is the monthly interest rates, and other associated setup costs, such as valuation fees, lender arrangement fees, broker set-up fees, legal fees and exit fees.
For most loans, exit fees can be avoided, as can the broker fee.
At ABC Finance, we don't charge broker fees when arranging a bridging loan.
What other fees can I expect to pay on my loan?
In addition to the interest charged, there are several fees that must be paid when setting up a new bridge loan.
The main costs of bridging loans can be broken down as follows:
- Lender arrangement fee – Fees tend to range between 1% – 3% of the loan amount on bridging finance, however most lenders charge a 2% set-up fee when the loan is set up. This fee can usually be added to the loan. The fee is sometimes reduced for larger loans.
- Valuation fee – Valuation fees are payable where a valuation is required. The fee generally covers a basic survey of the property. Where heavy refurbishment works are being undertaken, the lender may insist on a more detailed report. Some bridge loan lenders do offer desktop or automated valuations (AVM), there is usually no charge for this.
- Legal fees – In most cases, you have to pay the lender’s legal fees in addition to your own. This is common for bridging loans. These fees vary depending on the size of the loan, the number of properties that you’ll be securing against and the type of property itself.
- Broker fees – Some bridging loan brokers charge fees for their services, either a fixed cost or a percentage of the loan amount, some also charge upfront fees. In a majority of cases we don’t charge a fee for our services, however occasionally we may have to and if so, we’ll disclose this upfront, before you submit a bridging loan application.
- Exit fees – Some bridging loan lenders charge an additional fee when the loan is repaid, usually 1-2% of the loan amount. Where possible, we avoid using lenders who charge exit fees.
How much does a bridging loan cost (including interest rates and any set-up fee)?
The average cost of a bridging loan is between 5.64-12.2% per annum. The difference in cost is decided by the loan to value, the applicant’s credit history, property type and your plans for the property.
The strongest bridging loan applications will benefit from the lowest costs.
These are applications below 50% LTV with a clear credit history that are secured against residential property.
While bridge loans cost more than a traditional mortgage, which are around 3-5% per annum, they also offer you more opportunities to profit from property.
This can be through grabbing a bargain by completing quickly or adding value through property development or refurbishment.
How does a bridging loan work?
Bridging loans are arranged for a set term, usually between 1-18 months. It is then repayable in full at the end of the term.
The full interest is often deducted upfront, meaning there are often no monthly payments to make during the term of the loan.
In theory, there are two options – open and closed bridging loans. Open loans have no fixed term and as such interest can’t be deducted as it is an unknown amount.
Closed loans, however, have a set loan term and as such, it is easy to calculate the maximum total interest cost and deduct upfront.
Open options are usually more expensive, and you will need to prove that you can afford the monthly interest costs.
As such, the underwriting process tends to be more complex, with the bridging finance lender requiring more information. This may result in the process taking longer to complete.
Closed options represent a much lower risk as there are no monthly repayments to be made and, therefore, are usually the better option for most bridging loans.
Regardless of the type of finance options, a solid repayment strategy is vitally important to reduce the risk associated with bridging loans not being repaid.
Bridging loan uses
Bridging finance can be used for the following reasons:
- To fund a property purchase or refinance quickly.
- Buying property at auction.
- To finance an uninhabitable property.
- To purchase an unmortgageable property.
- Buying a property before selling your existing property.
- To fund a business venture or tax bill.
- To buy a below market value property without putting down a deposit.
- To fund a property refurbishment.
- To buy a property or land while undertaking an application for planning permission.
- To repay your existing mortgage while selling your property.
What are the different types of bridging?
There are several types bridging loan, they are:
Closed Bridging Loan
A closed loan is one that has a clear exit strategy defined from the outset, meaning the lender is clear on how you will repay the loan.
A closed bridging loan gives the lender added comfort that the loan will be repaid on time and as such, they can offer a lower rate due to the increased security.
As a closed bridging loans has a set term, the interest can usually be added to the loan, meaning there are no monthly repayments to make.
Open Bridging Loan
An open bridging loan has no defined exit strategy and usually have an open-ended, or very long loan term.
As an open bridging loan means that it has no defined exit date, they usually don’t allow rolled-up interest.
Although open bridging loans are more flexible and have no fixed repayment date, they don’t offer the lender as much security around the exit, and as such usually come with a higher interest rate than closed products.
First Charge Bridging Finance
A first charge bridging loan is a bridging loan that is secured by way of a first legal charge over your current property. This means that there is no other secured loan debt outstanding on the property, such as a mortgage.
When taking out a first charge bridging loan against your own home, your funding will be Financial Conduct Authority (FCA) regulated.
A Financial Conduct Authority (FCA) regulated bridging loan comes with more protection for the borrower, but this comes at a cost of slightly reduced flexibility. This can cause regulated bridging loan applications to be slightly more restrictive.
First charge rates are usually lower than those offered on second or third charge loans.
Second Charge bridge loan
Second charge loans are ones that is secured against a property that already has a legal charge or outstanding mortgage secured against it.
Second charge loans usually require consent from the 1st charge lender, although this can be avoided through the use of an equitable charge. Equitable charge bridging loans are less common, so this could restrict your choice of lender.
The rates and fees that you can expect to pay a bridging loan lender on second charge loans are usually higher than first charge loans.
That said it may still work out cheaper if it allows you to retain a first charge loan at a very low rate, rather than using a bridging loan to repay the whole debt.
Regulated bridging loans
These are loans that are secured against your own home on a first charge basis.
The term regulated refers to the fact that the bridging loan is covered by the Financial Conduct Authority (FCA), who provide increased consumer protection on these loans.
Unregulated bridging loans
Unregulated bridging loans are those secured against an investment property or loans for business purposes. The unregulated bridging loan market is popular with property investors.
Commercial bridging loans
Commercial bridging is a specialist type of bridge finance that is secured against commercial property.
Types of Bridging Loan
Open Bridging Loans
Land Bridging Loans
Closed Bridging Loans
Property Refurbishment
Regulated Bridging Loans
1st Charge Bridging Loans
Unregulated Bridging Loans
2nd Charge Bridging Loans
Commercial Bridging Loans
Development Exit Finance
abcfinance.co.uk
Bridge loan alternatives
The alternatives to bridging loans are:
- Secured loans – a secured loan is ideal for when you want to raise funds on a second charge loan. They are a loan secured against property and usually come with lower interest rates than bridging, although your max available borrowing may be restricted by how much equity you have in your property.
- Property development finance – for property developers. These are an alternative to bridging loans for those who are building property from the ground up.
- Commercial mortgages – for commercial properties, can be offered with fixed or variable rates. Bridging loans are often used to complete commercial property transactions quickly, before refinance to a commercial mortgage.
- Using savings or a family loan (essentially borrow money from family - while this may be fine for a smaller purchase, such as buying cars or repaying credit cards, it is often less so for funding large purchases such as a residential or commercial property.
- Personal loan - these can be used to raise smaller amounts, but aren't suitable when looking to borrow larger sums of money from lenders (or even much over a max of £20k). Personal loans usually have little to no lender arrangement fees and are unsecured, while bridging loans are a secured form of finance.
How do I compare bridging loans to each other?
To compare bridging loans with each other you should consider the total cost of each product, rather than just the interest rate.
This allows you to ensure that you’re getting the best bridging loan deal, rather than being taken in by a low headline fixed interest rate.
Other key factors to compare between different bridging loans are the following:
- Maximum LTV
- Set-up costs and exit fees
- The lender’s application process
- Whether the product has a fixed or variable monthly interest rate
- How quickly the lender can complete your bridging loan application
- Late payment fees, default interest charges and extension fees
- The type of security that the lender requires
- The reputation of the lender
Can I get a bridging loan if I have a bad credit history?
Yes, a bridging loan is generally available for borrowers who have bad credit. This can include defaults, CCJs, mortgage arrears, IVAs, debt management plans and even previous bankruptcy.
What types of property can a bridging loan be secured on?
A bridging loan can be secured against the following:
- Houses
- Apartments
- Flats
- Bungalows
- Maisonettes
- Commercial and mixed-use
- Self-builds
- Land
- Uninhabitable property
How quickly can you get a bridging loan?
We can arrange a bridging loan in 5-21 days - sometimes faster where your requirement is urgent.
The speed with which your bridging loan application is arranged will depend on the lender chosen, the simplicity of your circumstances and how quickly you answer questions and return documents to your provider or broker.
How much can you borrow with bridging finance?
We offer bridging loans from £10,000 with no maximum loan size. We can offer very large bridging loans, with no limit and could consider an funding for £8m, £50m or even £250m in theory.
Your maximum borrowing will depend on your property value, available equity, bridging loan lender chosen and property type (for example, residential, semi commercial, commercial or land).
The type of security offered is key and can be a key deciding factor in deciding how much you can borrow when applying for bridging finance.
How To Apply For A Bridging Loan
Talk to a broker to find the best bridging loan deal. They will present the options available to you.
Once you've chosen a product, the lender will assess your application and issue an agreement in principle.
You will complete the application form and send them any supporting information required for underwriting.
Once the underwriting process is complete, you get your offer and the legal work can begin through solicitors.
Your application is complete and your funds released. Any balance due to you is sent to your bank to be used as agreed.
abcfinance.co.uk
Is this type of loan risky?
Bridging loans can be risky, however most aren't. The key is knowing exactly how you will repay the funds, giving yourself sufficient time to repay and making sure you always have a back-up plan available.
This is known as your exit strategy and is something that you should consider before even making an application for a bridging loan.
What exit strategies will your lenders accept on these loans?
When you're looking to raise funding on a residential property, commercial property or even land, most lenders will consider various exit strategies (how you plan to pay back the loan).
Common bridging loan exit strategies include:
- Sale of the primary property
- Sale of other investments
- Refinance your bridging loan to a longer-term mortgage
- Sale of a secondary property
- Inheritance
- Sale of shares
Why use a broker when taking out bridging?
A good broker will help you to find the best deal on your bridge and can save you a lot of money.
Even the big money comparison sites such as MoneySuperMarket, GoCompare and Moneyfacts pass on enquiries for this type of funding to brokers, such is their importance to the market.
Experience is key when applying for bridging loans.
Frequently Asked Questions
How much equity do I need in my property for this type of funding?
You will need a minimum of 25% equity in your property, unless you offer the bridging lender additional security over another property, whether residential or commercial.
Loan to value is a key metric when assessing bridging loans and for this reason, deposit, or equity in the security property is key.
Is it a good idea to borrow money from bridging lenders?
Yes, a bridging loan can be a good idea if you have a short-term need to bridge the gap that requires funding.
That said, you should consider your own personal circumstances or seek specialist advice from a reputable bridging loan broker if you're unsure whether it's a good idea to borrow money this way.
Is this type of finance right for me?
To work out whether bridging finance is right for you, consider your personal circumstances, why you need a to access funding and how you will repay it.
Seek professional advice if you're not sure which product is best for your needs. Bridging loans are a specialist financial product, so it is important that you are sure before proceeding.
Which banks offer these loans?
The leading bridging loan lenders include Precise, United Trust Bank, LendInvest, Shawbrook, Spring Finance and Together Money.
Is bridging based on my income and finances?
No, your chosen exit route is more important than your income when it comes to bridging loans, especially when interest is being added to the loan.
This is where bridging loans are different to other types of borrowing such as mortgages, credit cards, overdrafts or secured loans.
Will I qualify for bridging loans if I’m retired and living on pensions?
Yes, bridging loans are often taken by retired borrowers who are looking to downsize while waiting to sell their old home, especially where speed and cashflow are important.
Will I qualify for bridging if I’m self-employed?
Yes, we can offer a bridging loan to self-employed borrowers. Applications from self-employed consumers is common and offered by most lenders.
Can I access bridging loans on land from your lenders?
Yes, many lenders offer a bridging loan on land, although it will be much simpler if planning permission is in place. Some peer-to-peer lenders are stronger in this area.
We work with lenders from across the market to ensure we can offer the greatest access to funding methods for a wide range of customers. Eligibility for our loans can be determined by talking to our team of broker experts.
What are the arrangement fees associated with a bridging loan?
Arrangement fees for bridging loans can vary depending on the bridging loan provider and the specific loan terms. These fees depend on the lending package and are typically calculated as a percentage of the bridging loan amount. Typical arrangement fees are 0.5-2% of the borrowing facility.
A decision, must be made about the total cost of loan cost when financing. You could face a facility fee, drawdown fee, admin fee, repayment fees and broker fees. While we at ABC Finance offer a great service at low cost, many lenders can and do charge high fees.
Always consult with your bridging loan broker or adviser to get a clear indication of the fees and how they will affect your cash flow and project finances.
How can a bridging loan help with property chain completion?
Bridging loans are a key financing tool for those in a property chain, which allow applicants to access the necessary funds to complete their property purchase while waiting for the sale of their current home.
This ensures that they don't miss out on your next house or property investment opportunity due to delays with a mortgage provider.
Bridging loan providers typically offer flexible loan terms that can be tailored to fit the specific situation of property chains, reducing risks and facilitating a smooth transaction for buyers and investors alike.
The speed and flexibility of bridging loans allows a fast, hassle-free way to repair a property chain that is at risk of failure.
Can bridging loans be used for auction purchases?
Yes, bridging loans are often used by property investors and developers for auction purchases. The short duration of the application process and quick access to funds make bridging loans the ideal choice for purchasing property at auction where a fast completion times is key.
When planning to use a bridging loan for this purpose, it is crucial to have a clear exit plan in place, such as refinancing or the resale of the property, to repay the loan within the agreed term.
Consulting with a credit broker or bridging loan broker can provide valuable tips and guidance to ensure that the financing meets the requirements of your auction purchase.
Bridging loans for an auction purchase is known as auction finance.
