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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 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.
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, Finance Expert at
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 this type of finance, 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 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.
Are they a replacement for a mortgage?
Yes, a bridging loan is a replacement for a mortgage.
They 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 one sells.
Is Property Investment the main reason for bridge loans?
Yes, property investment is the main reason for taking out a bridging loan. This is true whether you’re financing an investment property, buy to let property or your own home.
This is because a bridging loan allows you to secure a property quickly and add value through property refurbishment where it is needed.
Bridging loan key product features
|Up to 85%
|From 0.47% per month
|1st, 2nd & 3rd considered
|1-36 months (maximum 12 months for regulated bridge loans)
|Added to the loan, deducted or serviced
|5 days - 3 weeks
- 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 bridge 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 bridge 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 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.
What are the disadvantages of a property bridging loan?
The disadvantages are:
- They add cost to a property transaction – No matter how cheap your loan 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 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, 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. This type of 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 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 rate 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, there are several fees that must be paid when setting up a new bridge loan.
The main costs can be broken down as follows:
- 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 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. 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.
- 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 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?
They 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 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.
Regardless of the type of finance options, a solid repayment strategy is vitally important to reduce the risk taken.
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 bridge 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 bridge 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.
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.
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.
Regulated bridge 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 Financial Conduct Authority (FCA) provide increased consumer protection on these loans.
Unregulated bridge loans
Unregulated bridge loans are those secured against an investment property or loans for business purposes.
Commercial bridging is a specialist type of bridge finance that is secured against commercial property.
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
- Commercial mortgages – for commercial properties, can be offered with fixed or variable rates.
- 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.
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 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 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.
Does a bridging loan lender ensure that my consumer rights are safe, like a mortgage, secured loan, remortgage overdraft or credit cards?
Yes, regulated bridging loans in particular are regulated by the Financial Conduct Authority (FCA). This means that your consumer rights are protected and you have the right to mediation through the Financial Ombudsman Service (FOS), should you require it.
Regulated bridging finance tend to require a strong exit strategy and can only be offered as closed loans.
A closed bridging loan will need the exit strategy to be explained during the application process.
What types of property can a bridging loan be secured on?
A bridging loan can be secured against the following:
- Commercial and mixed-use
- 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 loans from £10,000 with no maximum loan size. We can offer very large 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, lender chosen and property type (for example, residential, semi commercial, commercial or land).
Is this type of loan 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.
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 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
- 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.
Bridging FAQs UK
Here are some of the questions that we're often asked about bridging loans.
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.
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 if you're unsure whether it's a good idea to borrow money this way.
To work this out, 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.
The leading bridging lenders include Precise, United Trust Bank, LendInvest, Shawbrook, Spring Finance and Together Money.
No, your chosen exit route is more important than your income, especially when interest is being added to the loan.
Yes, they're often taken by retired borrowers who are looking to downsize while waiting to sell their old home, especially where speed and cashflow are important.
Yes, we can offer a bridging loan to self-employed borrowers. Applications from self-employed consumers is common and offered by most 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.
About the author
Gary is an experienced finance professional who holds CeMAP, CeFA, CeRGI and CSP qualifications. He has a well rounded background across financial services and has worked with commercial finance, bridging loans, financial advice, pensions and insurance throughout his career.
These days, Gary heads up a lot of the operations at ABC Finance, works closely with the team and leads our work to build and integrate new technology to the business.
He regularly appears in and writes for the press including local and national news, trade publications and specialist business news.