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 were first offered in the 1960s by large banks and building societies to fund property purchases before the borrower’s existing property was sold.
Bridge 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.
Bridging Loans Explained Simply
A bridging loan works like a short-term mortgage, allowing you to borrow money against a property for a set term, usually anything from 1-18 months.
Unlike mortgages, in some cases, there are no monthly payments to make, instead, the lender will roll-up the interest each month and allow you to settle it when the loan is repaid.
Due to the short-term nature of bridging loans, how you plan to repay the facility is a key part of the application process. It is often considered as more important than things such as your income or credit history.
Bridging Loan Interest Rates and Costs in 2026
Below is a quick guide to bridging loan rates by security type:
| Bridging loan type | Maximum LTV | Rates From |
|---|---|---|
| Regulated bridging loans | 75% | 0.55% per month |
| Unregulated bridging loans | 90% | 0.35% per month |
| Semi-commercial | 75% | 0.7% per month |
| Commercial bridging loans | 70% | 0.75% per month |
| Development exit finance | 80% | 0.35% per month |
| Land | 65% | 0.96% per month |
| Property refurbishment finance | 90% | 0.35% per month |
Interest rates 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 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 rates see your monthly interest 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.
In most cases, 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, several fees must be paid when setting up a new bridge loan.
The main costs can be broken down as follows:
- 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.
- Lender arrangement fee – Fees tend to range between 1% – 3% of the loan amount on bridge 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 large bridging loans over £1m.
- 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. 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. We don’t charge broker fees for this type of finance.
Bridge Bridging loan rates & costs explained
Yes, on top of the interest charged, there are several fees to consider. They are:
- Lender arrangement fee – Bridging loan fees tend to range between 1% – 3% of the loan amount; 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 by the bridging loan lender. The fee generally covers a basic survey of the property for bridging purposes. 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 bridging cases, you have to pay the lender’s legal fees in addition to your own. 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, and some even charge upfront fees. We never charge fees for loans over £100,000.
- Exit fees – Some bridging 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 Do Bridging Loans Work?
A bridging loan allows you to borrow money quickly and is 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. In the market, this is know 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 this type of finance, with lenders focusing 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 bridge, 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 loan.
Below market value purchases can be funded up to 100% of the purchase price and property refurbishment finance up to 90% of the current LTV.
First Charge vs Second Charge Loans
It’s important to understand the difference between first charge and second charge bridging loans.
First charge bridging loans
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.
First charge rates are usually lower than those offered on second or third charge loans.
Second charge bridge loans
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.
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.
The Importance of an Exit Strategy
Your exit strategy (how you plan to repay the loan) is a crucial element to any bridging loan application.
Having a robust and reliable exit strategy in place is the key step in the process that keeps you secure, and not just a box to tick in the underwriting process.
If there is any doubt about whether you will be able to repay the loan safely, you should not proceed. Your exit strategy is that important.
Most bridging loans are repaid through one of the following exit strategies:
Sale of the security property
A very common route to repaying a bridging finance facility is the sale of the property that the loan has been taken out against.
This approach is quite simple to assess for likelihood to succeed. If the sale price is realistic, demand strong in the area and the average time to sale is well within the loan term, this strategy is very unlikely to fail.
When sale of the security property is your chosen exit strategy, lenders are unlikely to be too concerned about issues such as your credit history or income (where there are no monthly interest payments to make).
Refinance to a term loan
Another very common exit strategy is to refinance the bridging loan onto a traditional mortgage, either a residential mortgage or buy to let mortgage.
This route is simple and well-liked by many lenders, but the key issue is ensuring you’ll be able to secure the funds needed. Most lenders will look to ensure this through an agreement in principle from the proposed new lender.
Where taking out your loan through ABC Finance, we are able to both arrange the agreement in principle, and the mortgage, should you require us to.
Sale of a secondary property
When selling a secondary property (not the one you’re taking the loan against), most lenders will still be happy to lend, although there will be some caution around this exit strategy.
In most cases, the lender will look to understand the value of the property and may require some level of control over it. The most common way to do this is to take either a charge over it, or place a restriction over the property to ensure that the sale proceeds are used to repay your bridging finance.
Without this, the lender has no control over the exit strategy, which is likely to make the application process tricky.
Inheritance
When inheriting money, there is more nuance in the lenders approach to getting comfortable with your exit strategy.
The key factors are that the inheritance is guaranteed (so nothing that isn’t 100% confirmed as coming to you) and guaranteed to arrive before the end of the loan term.
Some lenders may still have concerns as they have no control over those funds and are reliant on you paying off the loan when the funds arrive. Others will take a more relaxed view. For this reason, choosing the right lender is key in this situation.
Sale of other investments
When you hold other investments, such as a share portfolio, cash savings that are locked away for a fixed period or company share options, they can be used as a viable exit strategy.
Understanding the nature of the investment, that the funds will be available before the end of the loan term and are guaranteed will be key, as will choosing a lender that is comfortable with this approach.
A combination
A combination of exit strategies are often used, for example a chain-break bridging loan could be repaid through the sale of your old property and refinance of the new one.
In this situation, each exit is worked through and the lender will ensure each part works (the property is likely to sell in time and you can secure the new mortgage that will be needed).
If everything is robust, there is a high chance that your application will be approved, as long as you meet the rest of the criteria.
Pros and Cons: Are Bridging Loans Risky?
The advantages of a bridging loan are:
- Speed – They can be arranged very quickly; you can get a bridging loan in 2 days-2 weeks. Some even complete on the day of application, far faster than most alternatives to bridge loans.
- The costs are falling – The bridge loan market is currently in a price war. Rates start from 0.39%. 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 bridge 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 – Bridge loans can be used to buy a property that you would otherwise be unable to borrow against.
The disadvantages are:
- Problems with exit route – If you have problems with your method of repaying, this can cause major issues as the end of the bridging loan approaches. If you can’t repay the loan at the end of the term, you must 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.
- 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.
- 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 loan 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.
Are bridging loans risky?
They 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.
Where interest is being paid monthly, rather than rolled-up, it is important to ensure this is affordable to avoid taking unnecessary risk.
