Bridging Loan – Financing From £10k To £250m, Written Terms in 2 Hours
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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 bridge 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 (LTV) and your circumstances.
The best deals are usually offered for financing 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.
Bridging loan topics in this article:
- Get a bridging loan quote
- What is a bridging loan?
- 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 does a bridging loan cost?
- How do bridging finance work?
- What can a bridging loan be used for?
- What are the different types of bridging loan?
- What are the alternatives to bridging loans?
- How do I compare bridging loans to each other?
- Can I get a bridging loan if I have a bad credit history?
- What types of property can a bridging loan be secured on?
- How quickly can you get a bridging loan?
- How much can you borrow with bridging finance?
- How to apply for a bridging loan
- What does the bridging loan lending process look like?
- What is the eligibility criteria for bridge financing?
- Is this type of loan risky?
- What exit strategies will your lenders accept on bridging loans?
- Why use a broker when taking out bridging finance?
- Frequently asked questions
Talk to Lee about bridging loans
If you’re in need of a bridging loan or you’d like to discuss your financing options then ABC Finance is here to help. Speak to Lee today for a free no obligation quote.
Lee Hemming is a specialist bridging loan advisor at ABC Finance with years of experience arranging the right finance solutions for our customers. Call, email or contact ABC Finance today to learn more.
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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 sale of the buyer’s property had completed.
Bridge financing is 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.“
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 is paid to you as a lump sum after a property purchase or refinance.
Bridging loans are arranged for a set term, typically between 1-18 months with payment due at the end of the term. In the majority of cases, interest accrues on a monthly basis and is due at the point of repayment, this is known as ‘retained interest.’ This means there are no monthly payments to make during the term of the loan.
Lenders focus on how the loan will be repaid and this is known as your ‘exit strategy’, in most cases the loan is repaid by selling a property.
During the loan period the lender will have a financial interest in your property and a legal charge will be placed upon it. At the end of the loan term the legal charge is removed from the property.
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, which is the value of the property minus any loans secured against it, are key to securing a bridging loan. Lenders will focus on LTV and equity alongside your exit strategy 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 are a short-term form of alternative form of funding that is used when a mortgage wouldn’t be available, but money needs to be borrowed 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.
You can learn more about the differences between mortgages and bridging loans in our article ‘How Do Bridging Loans Compare To Mortgages?‘.
Is Property Investment the main reason to take a bridge loan?
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.
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Bridging loans by ABC Finance
ABC Finance has arranged bridging loans for thousands of businesses and individuals, see our Trustpilot reviews from satisfied customers. Our aim is to get you the very best deal and to save you money.
- Borrow from 10k to 250m to buy, invest, renovate property, property expansion or land purchase.
- Written terms within two hours and fast funding available in days.
- ABC works with a panel of specialist lenders to find you the right deal, whatever your circumstances.
- Contact ABC Finance for a free no obligation quote today: 01922 620008
Bridging loan key product 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
How we can help:
Applying for a loan can feel daunting and complex. With ABC Finance the process is straightforward and simple. Speak to our friendly experts who will discuss your needs and help you decide what type of finance is suitable for you. ABC will compare rates, get you the best deal for your circumstances and manage the paperwork until the moment the funds hit your account.
What are the advantages of bridging loans?
The advantages of a bridging loan are:
Bridging loans are fast
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.
Bridging loan 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.
Bridging finance is flexible
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:
Bridging loans 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.
Bridge loan 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.
Bridge loans require an 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 pay back 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, UK residents and overseas borrowers.
What interest rate will I pay on a property bridging loan?
Bridging loan interest rates are currently between 0.47-1.25% per month, large bridging loans (those over £1,000,000) may get a better rate.
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. The interest rate will also reflect the risk the lender is taking on the loan, the length of the loan and the type of property used as collateral.
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 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 bridging finance work?
Bridging loans work by accumulating interest over a set term, usually between 1-18 months. The loan along with the total accumulated interest is then repayable in full at the end of the set 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
Property investment is the most common reason for taking out bridging loans. It’s a fast and flexible form of funding whether you’re financing an investment property, a buy-to-let property, or your own home.
If you are an investor, a bridging loan allows you to secure a property quickly, access funds promptly, and add value through property refurbishment. When a renovation or refurbishment is complete you can have several options to repay the bridging loan; for example, you could refinance to a longer term form of financing, such as a mortgage, or sell the property and use the revenue generated.
Bridging finance can also be used for the following reasons:
Quick refinancing
You may find yourself in a situation where you need to refinance a property quickly. This could be because you’ve found a better rate, come to the end of your loan or need a stop-gap before you take on a mortgage. Whilst refinancing is often known as remortgaging, it can also apply to the bridging loan market.
Bridging loans can be arranged very quickly, sometimes even on the same day of application, which is much faster than most alternatives.
You can learn more about refinancing bridging loans here.
To buy a property auction
Buying a property at auction is a very common reason for taking a bridging loan, the payment terms once a sale has been agreed are usually 28 days and this means that in most cases it can be difficult to arrange a mortgage or traditional loan within the timescale required.
Bridging loans are well suited to auction purposes and in some cases can be arranged in several days taking the worry out of waiting for finance and potentially losing your deposit.
Find out more about purchasing an auction property with a bridging loan here.
Finance an uninhabitable or unmortgageable property
Mortgages providers won’t lend against properties that are uninhabitable and so alternative finance is needed during renovation periods. Bridging loans are much more flexible than mortgages and lenders are prepared to loan against properties that mainstream banks would not consider for a loan.
You can learn more about using a bridging loan to purchase an unmortgageable property in our ‘Buying An Unmortgageable Property‘ guide.
To buy a property before selling your existing property.
Bridging loans are a key financing tool for those in a property chain allowing applicants to access the necessary funds to complete their property purchase while waiting for the sale of their current home.
This means you don’t lose out on buying the perfect property and can wait until your existing property is sold to pay back the bridging loan. It also allows for a normal property sale rather than rushing a sale through at a reduced value. A quick purchase has the additional benefit of reducing the risk of being gazumped where another, higher, bid is made on the property or even gazundering where a seller suddenly lowers an offer. This is less likely in Scotland where legal documents are exchanged at a much earlier stage in a property sale protecting both the buyer and seller from sudden changes.
A short term loan is also useful when you have sold your home and are waiting to complete the legal paperwork and finalise the sale. In this situation a ‘closed bridging loan’ is used and this is where the borrower can state exactly when the loan will be paid back and be clear about what the exit strategy, or method of repayment, is. Whilst an exit strategy often involves selling a property it can be based on receiving a pension lump sum, a student loan or selling assets.
See our helpful ‘How To Use A Bridging Loan To Buy A New Home Before Selling Your Current One‘ guide to learn more.
To fund a business venture or tax bill
When you need a large amount of money in a short period of time for an investment or to pay a tax bill for His Majesty’s Revenue and Customs (HMRC), a bridging loan is often a good way to get the funds you need. The amount that can be borrowed with a bridging loan can be significant because it is secured against property and so it means that personal credit history is less of an issue.
To buy a below market value property without putting down a deposit
A below market value property is one that is for sale at a discount compared to other similar properties in that area. There are many reasons for properties being sold at a discount, such as: divorce; death, retirement downsizing; repossession and debt. When a property is being sold at a sizeable discount it is usually because the seller would like a quick sale.
Bridging loans are perfect in this scenario owing to their speed.
You can learn more about financing a below market value property here.
To fund a property refurbishment
Bridging loans can be used to fund property refurbishments for residential properties as well as commercial properties. Whilst a bridge loan is usually secured against property it can also be secured against high value assets and be paid off by the sale of shares, assets or from a pension lump sum.
The buy, refurbish, refinance and rent (BRRR)
The Buy, Refurbish, Refinance and Rent (BRRR) method is increasingly popular with investors and covers scenarios such as buying distressed or uninhabitable properties to renovate and rent out. The difference between a traditional refurbishment and a BRRR project is that investors often have several BRRR properties, rather than just one residential property.
Often a BRRR property is bought at auction or is a below market value property where fast financing is required. It is important to note that standards for rental properties vary throughout the UK. In Wales the Renting Homes Act 2022 requires landlords to comply with higher safety standards when renting a property, this includes electrical safety testing and fitting smoke and carbon monoxide detectors.
Bridging loans can help provide the finance required to renovate and refurbish property to the legal standards required throughout the UK. Once the property meets required standards it can then be refinancing to a buy to let mortgage at a lower rate. The property will then be let and the income from tenants will pay a mortgage on the property.
To buy land while undertaking an application for planning permission
Land bridging loans are a type of bridge loan that can be used for the purchase and development of land, either residential or commercial. Often a land bridging loan is sought whilst an investor awaits planning permission.
With a land purchase, a lender will offer up to 80% of the value of the land. If additional funds are required then other assets can be used as security to achieve 100% of the land’s value; this may be another property or piece of land.
What are the different types of bridging?
Types of Bridging Loan
Open Bridging Loans
Closed Bridging Loans
1st Charge Bridging Loans
abcfinance.co.uk
There are several types bridging loan, they are:
Closed Bridging Loan
Closed loans have a fixed repayment date and a set rate of interest. They represent a lower risk to the lender. A closed loan is suitable when, for example, the date of a property sale is known.
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 loan 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 and represent a higher risk to the lender. Open loans are more expensive than closed loans.
Interest rates on an open loan will be paid on a monthly basis rather than as retained interest at the end of the term. You will need to prove to the lender that you can afford the monthly interest costs.
Additionally, the underwriting process for an open loan tends to be more complex as a lender will require more information about your ability to pay back the loan in the absence of a fixed date. This may result in the process taking longer to complete.
First Charge Bridging Finance
A first charge bridging loan is a bridging loan that is secured against your property, and it is the only loan on your property. This means that there is no other secured loan debt outstanding on the property, such as a mortgage.
When property is used as collateral a legal charge is placed upon it for the duration of a loan.
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, however, this comes at the cost of slightly reduced flexibility and more restrictive terms than an unregulated loan.
First charge rates are usually lower than those offered on second or third charge loans.
Second Charge bridge loan
Second charge loans are secured against a property that already has a legal charge or outstanding mortgage secured against it.
Second charge loans usually require consent from the first 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.
Use of a second charge may still work out cheaper than a bridging loan to pay off the whole debt if the first charge loan is at a preferable rate.
Regulated bridging loans
These are loans that are secured against your own home on a first charge basis up to 75% of the property’s value.
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. If you are looking to raise capital for commercial activities a business finance loan may be more appropriate.
Bridge loan alternatives
There are a number of alternatives to bridging loans if you need to raise funds, here are the most common.
Secured loans
A secured loan is ideal for when you want to raise funds on a second charge loan. They are secured against property and usually come with lower interest rates than bridging loans. The amount of the loan will be dependent on how much equity you have in your property.
Property development finance
Property development finance is an alternative to bridging loans for developers who are building property from the ground up.
Commercial mortgages
Commercial mortgages can be used for purchasing commercial property and 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.
Savings or family loans
While this may be fine for a smaller purchase, such as buying cars or repaying credit cards, it is often less appropriate for funding large purchases such as a residential or commercial property. Additionally, if your circumstances change and you are unable to pay back the loan this may fracture your relationship.
Personal Loan
Personal loans 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. All loans are subject to credit checks.
What types of property can a bridging loan be secured on?
A bridging loan can be secured against the following type of property:
- Houses
- Apartments
- Flats
- Bungalows
- Maisonettes
- Commercial and mixed-use
- Self-builds
- Land
- Uninhabitable property
How quickly can you get bridge financing?
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.
If you are looking for a fast bridging loan it’s likely you will have to forego some of the optional stages in the loans process, such as undertaking surveys. This will increase the risk to the lender and so rates are likely to be slightly higher for a speedy turnaround.
If you are looking for a significant amount and an unregulated bridge this will also increase the risk to the lender and likely result in additional checks.
Here are some examples of possible completion times for fast funding:
Loan amount
Completion time
Up to £300k
3 days
Up to £750k
7 days
More than £750k
3 weeks
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 funding for £8m, £50m or even £250m depending on your situation.
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.
Bridging loans are regulated by the Financial Conduct Authority in the UK at up to 75% of the property value, a loan beyond this amount is possible although it is an unregulated bridge.
Most lenders will work on a regulated loan basis of 75% although some will extend this to 80% for an unregulated bridge. Unregulated bridging more often applies to semi-commercial and commercial projects of exceptional value.
There are circumstances where significant loans at higher LTVs can be offered and it is worth speaking to a specialist broker, such as ABC to discuss options. We can match you with the right lender from our panel of experts.
In summary, your maximum borrowing will depend on a number of factors: your property value, available equity, bridging loan lender and property type. Interest rates and funding times can vary between lenders and so it really is worth shopping around to get a deal that suits you.
Can you borrow 100% bridging finance?
Yes. In some circumstances a 100% loan will be possible, however, this is rare and usually for commercial properties where other assets are used in addition to property to secure the loan.
As bridging loans are used as a fast form of finance in a wide range of scenarios from renovations to significant commercial developments they can range from £10,000 to £250,000,000.
How do I apply for bridge financing?
You can approach lenders individually or use a broker, such as ABC Finance to match you with the right lender for your circumstances. Here we explain the process and how to apply step by step:
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
What does the bridging loan lending process look like?
1. The enquiry stage
This is where you investigate options. You can approach lenders individually or use a broker, such as ABC Finance to match you with the right lender for your circumstances. Whichever option you choose, you should not be charged for your initial enquiry. ABC will never charge for an enquiry.
With ABC fill in a simple form, and one of our friendly experts will call you back. During the call we will discuss your needs, your budget, inform you about the options available and give you approximate costs.
During the call you will be given a decision in principle (DIP). This confirms how much a lender is likely to give you.
2. Loan acceptance
You select the loan that matches your requirements and the lender is instructed.
3. Valuation
This is where the assets you provide as collateral, usually a property, are valued. This process can often be a desktop valuation; for example, a residential property. If however, your property is of significant value or unique then a survey may be required.
4. Legal process
The legal process is particularly relevant with a bridging loan, as a legal charge is placed upon your property giving the lender an interest in the property during the loan term. You will need to pay for the lender’s solicitor and you may choose to use your own solicitor. Read our ABC guide on using a solicitor for a bridging loan to understand the pros and cons of getting expert advice.
If you are looking to complete quickly then legal work can be instructed at the same time as the valuation.
5. Completion
Funds are transferred directly to you at the final stage of the process.
What is the eligibility criteria for bridge financing?
Bridging loans are available to individuals, partnerships, Limited Liability Partnerships (LLP), Ltd companies, offshore companies, foreign nationals and pension funds.
To be eligible for a bridging loan you will need to be 18 or over and a UK resident. You may also need to provide proof of income, bridging loan lenders in England commonly accept:
- Payslips
- Bank statements
- Tax returns
- Property income (demonstrated through bank statements)
You will need to provide detailed information about the property you intend to use as security, or a clear business plan for land or property development.
Financial history is less of a concern to lenders as compared to a mortgage in England as interest is, in most cases, paid at the end of the loan period and secured on a property.
Bridging loans are unlikely to be offered to those over 85 years old, however, there are other options available if you are looking to secure finance against property. Our friendly team can help guide you through the options, request a free callback for a no obligation quote.
There are many different reasons for securing a bridging loan and no one-size fits all, with our range of specialist lenders we can help most people find a loan.
Bridging loan 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
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 bridge 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 finance?
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.
Talk to Lee about financing a bridging loan
If you’d like to find out how ABC Finance can help you finance any type of bridging loan, get in touch with Lee today.
Lee Hemming is a specialist bridging loan advisor at ABC Finance with years of experience arranging the right finance solutions for our customers. Call, email or contact ABC Finance today to learn more.
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 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 finance 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 bridge financing?
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 bridge 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 a bridging loan 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.
Will base rate cuts make bridge loans cheaper?
When lenders refer to a base rate they are referring to the Bank of England interest rate. Lenders tend to follow the base rate, increasing and decreasing loan interest as the base rate rises and falls.
If the base rate is cut then lenders are likely to lower Annual Percentage Rates (APRs) making borrowing cheaper. Bridging loans often have higher APRs than other loans and so any cut to the base rate will be beneficial in this market.
Not all lenders choose to immediately drop their rates, especially if the base rate reduction is small. As a general rule, however, base rate cuts are beneficial to borrowers.
Does a bridging loan lender ensure that my consumer rights are safe, like a mortgage, secured loan, remortgage overdraft or credit cards?
Bridging loans up to 75% of a property’s value are regulated by the Financial Conduct Authority. The FCA supports consumers and covers loans in the same way it covers products such as credit cards and other banking products. If poor advice has been given the FCA can help a consumer secure compensation and take action against the seller.
Is property investment the most common reason to take bridge loans?
Property investment is now the main use for bridging finance although it originated in the residential sector to help fund property purchases before a borrower had sold their own home. Today, bridging loans are a popular form of fast and flexible funding for investors who are often working on renovating several properties at a time.
Can you get a mortgage on an auction property?
It is unlikely you will get a mortgage on a property purchased at auction. When a property sells at auction the terms of the sale ordinarily require that a deposit is paid on the day and the rest of the funds are paid within 28 days. Mortgages tend to take longer than a month to complete and involve detailed surveys and checks. Additionally, often auction properties are in a state of disrepair and so it is unlikely a mortgage provider would provide a loan in this situation.
Can you buy an auction property with a bridging loan?
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 time 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
With bridging finance being more expensive than more traditional options like mortgages, why would people choose to use them?
Bridging loans allow you to profit from property owing to their flexibility and ability to be secured against properties that traditional mortgage lenders would not consider, such as inhabitable properties. They are perfect for investors or those who need to complete a deal quickly. Whilst bridging loans have higher interest rates than mortgages, they are only needed for a short amount of time and so overall can be a very helpful option to access fast funding.
Can I use a bridging loan for a buy to let property?
Buy to let investors often use bridging loans, as they often have a number of properties and can secure a loan against one or more of their properties to obtain the finance they need to buy more properties. If properties need refurbishment or renovation they can be purchased with a bridging loan and then when they are in a fit state to be rented the owner can secure a mortgage on the property and exit the bridging loan.
How will the mortgage credit directive affect mixed-use properties?
The Mortgage Credit Directive is European legislation that sets out rules to ensure that all mortgage lenders act in the same way irrespective of where they are based. The aim is to protect consumers from misleading practice and enable them to compare products.
A mixed use property is a property that is used for residential and commercial purposes. For example, a shop that has a residential flat above it would be a mixed use property.
The Mortgage Credit Directive does not apply to residential properties used for business purposes such as buy to let properties.
It is important, however, to seek professional advice when entering into financial agreements especially if you intend to invest in property. Our article ‘do I need a solicitor for a bridging loan’ outlines the pros and cons of using legal experts for financial arrangements.
Are bridging loans available nationwide?
Yes, however the regulations around bridging loans can vary slightly between different pages of the United Kingdom.
You can learn more about the intricacies of bridging loans with out helpful guides:
- How to get a Bridging Loan in England
- How to get a Bridging Loan in Scotland
- How to get a Bridging Loan in Wales
- How to get a Bridging Loan in Northern Ireland
How much equity do I need for bridge finance?
Typically you need a minimum of 25% equity in the property you are using as security although this can vary depending on the type of property and your circumstances. Additional properties, or assets can be used to increase the loan amount if a lump sum of cash is not available.
If exit fees apply are they based on the loan amount?
Exit fees are normally around 1-2% of the loan amount, or a month’s interest. Exit fees are not always charged but when they are it will be payable whenever the loan is repaid whether that is early, on time or late.
An exit fee is often confused with early repayment charges, these are sometimes applied if a loan is paid back sooner than agreed.
Fees can make a significant difference to the total cost of a loan and the details of all the costs and fees that apply will be outlined in your bridging loan offer letter. Read our ABC Finance ‘can you repay a bridging loan early’ guide.
Do I need proof of income for a bridging loan?
When interest payments are ‘rolled up’ and paid at the end of the loan term then proof of income is not required. In some situations, where interest is paid on a monthly basis then proof of income may be required.
Can I use a bridging loan for business bills or tax bills?
Yes, you can use a bridging loan to pay your HMRC bill or business bills; however, there are a number of loan products available including specific loans for tax. Get in touch with your provider for options.
How can you speed up the bridging loan process?
You can speed up the bridging loan process by speaking to a specialist broker and letting them know that you are looking for fast finance. ABC Finance can arrange terms from £10,000 to £250m within hours.
Your broker will work to find you lenders that can provide fast funding, and some bridging loans can be arranged within days.
A broker will know what checks and paperwork are required, and advise on the stages of the process that are mandatory and those that are optional, such as surveys.
Should I use a solicitor for a bridging loan?
The legal system varies throughout the UK and different rules apply to property sales in England, Northern Ireland, Scotland and Wales. Using a solicitor with experience in bridging loans can help speed up the process. Our article ‘do I need a solicitor for a bridging loan’ outlines the pros and cons of using legal experts for financial arrangements.
Are bridging loans FCA regulated?
Yes, bridging loans are regulated by the Financial Conduct Authority up to 75% in the United Kingdom. This gives the buyer protection from being mis-sold a loan. Loans beyond 75% are available but not regulated, these are known as unregulated loans and carry a higher risk, therefore the interest rates on unregulated loans are ordinarily higher.
What is the repayment period on a bridging loan?
For a residential property the repayment period is 12 months, this can be extended for commercial properties, however, bridging loans are short-term financial tools and not designed for longer term use.
Do bridging loans require credit checks?
Most lenders will use credit checks; however, a bridging loan requires a deposit and security in the form of a property and so your personal credit history is not often a deciding factor when applying for a bridging loan.
You can apply for a bridge loan even if you have defaults, CCJs, mortgage arrears, IVAs, debt management plans and even previous bankruptcy.
Bridging finance case studies
Quick Regulated Bridging Loan Secured for Property Purchase
Second Charge Bridging Loan for Business Investment
Auction Purchase Using A Regulated Bridging Loan
Bridging Loan to Raise Money for Property Purchase in Asia
Bridging Loan to Raise Capital and Consolidate Debt
Second Charge Bridge for Business Purposes
Learn more about bridging loans
Are Bridging Loans Available Nationwide?
Can You Repay A Bridging Loan Early?
Why Choose A Bridging Loan?
Three Things To Consider Before Taking Out A Bridging Loan
Using Property Refurbishment Finance to Increase Your Property Investment Returns
The Importance of an Exit Strategy
Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in bridging loans
Bridging Loans Summary
Bridging loans are short-term loans secured against property that are used to bridge the gap between two events, such as purchasing one property and selling another.
They are a popular form of finance offered by a wide range of lenders.
Bridge finance loans are more expensive than traditional mortgages, but they offer the advantage of speed and are suitable for properties where a mortgage would not be available. Additionally, as the loan is secured against property personal credit is less of an issue.
If you’d like to arrange a bridging loan or have any questions about bridge financing click here to talk with ABC finance.
