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A bridging loan could help you purchase or refinance a property quickly. Bridging loans are popular with those looking to buy a property before their existing home is sold and investors who are looking to complete unusual purchases. Read on to learn everything you need to know about bridging finance, the products available and how you can get the best rate.

What Is A Bridging Loan?

A short-term bridging loan is a type of loan used to ‘bridge a gap’. They are often used to secure funds quickly to cover a pressing need. The main reasons people choose a bridge loan are the following:

  • Auction purchases
  • Purchase or refinance of a property in need of refurbishment
  • Release funds quickly to pay unexpected bills
  • To cover mortgage delays

Of course, there are many other reasons that a person may need to raise funds quickly and due to the simple nature of certain lenders application processes, a bridging loan can be an appealing option.

How Much Can I Borrow?

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Latest Bridging Offers

View some of the best offers from our market leading lenders and get started with your application.

Product BL0001 - Apply Now
Interest Rate
0.44%
Lender Fee
1.00%
Max LTV
55%
Security Type
Residential
Min-Max Loan
£250,001 - £50,000,000
Max Term
18 Months
Regulated Accepted?
No
Product BL0002 - Apply Now
Interest Rate
0.44%
Lender Fee
1.50%
Max LTV
55%
Security Type
Residential
Min-Max Loan
£100,000 - £250,000
Max Term
18 Months
Regulated Accepted?
No
Product BL0003 - Apply Now
Interest Rate
0.47%
Lender Fee
1.00%
Max LTV
50%
Security Type
Residential
Min-Max Loan
£250,000 - £50,000,000
Max Term
12 Months
Regulated Accepted?
Yes
CLICK HERE TO COMPARE MORE MARKET LEADING PRODUCTS

Everything You Need To Know About Bridging Loans

From calculators to guides, criteria, faqs and jargon busters, at ABC Finance we have everything you need to know about bridging loans.

How Does a Bridge Loan Work?

Bridging loans are arranged for a set term, usually between 1-18 months, with the loan 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 two types of bridging loan – open and closed loans. Open bridging loans have no fixed term and as such interest can’t be deducted as it is an unknown amount. Closed bridging loans have a set term and as such, it is easy to calculate the maximum total interest cost and deduct upfront.

Open bridging loans 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 your loan taking longer to complete.

Closed bridging loans represent a much lower risk as there are no monthly repayments to be made and as such, they are usually the better option.

Regardless of the type of loan chosen, a solid repayment strategy is vitally important to reduce the risk taken.

Reasons to Get a Bridging Loan

Bridging loans can allow you to complete an urgent transaction which you would otherwise be able to undertake. Bridging loans are usually a tool that allows you to undertake a beneficial transaction or avoid missing out on a transaction.

Bridging loans in themselves, much like a mortgage don’t directly benefit you – they do allow you to complete a transaction that would otherwise be out of reach.

Read on below to find out the common uses for bridging loans and how they could benefit you.

What Can I Use a Bridging Loan For?

Bridging finance can be used in several situations. The most common uses are:

The Pros and Cons of Bridging Loans

Bridging loans are a borrowing tool that is growing in popularity. Before taking out bridging finance, you should always be aware of both the pros and cons.

Pros

  • Speed – Bridging loans can be arranged very quickly, with applications usually completing in 5-14 days, with some even completing on the day of application!
  • Rates are falling – The bridging finance market is currently in a rate war. Bridging loan rates now start from 0.44%, with a rate of 0.37% available for select applications. The main drawback has historically been cost, although this is now becoming a definite pro!
  • Flexibility – Bridging finance can be repaid early without penalty. When bridging loans are repaid early, any unused interest is usually rebated, saving you money.
  • No monthly payments – Where interest is rolled up or deducted, there are no monthly payments to make. This can be a major help to cashflow during a refurbishment or marketing period.
  • They allow lending against unmortgageable properties – Loans be used to purchase properties that you would otherwise be unable to borrow against.

Cons

  • They add cost to a property transaction – No matter how cheap your bridging loan is, it will still cost something. This will add a cost to your property transaction that must be considered.
  • Hidden charges – Comparing quotes from bridging loan lenders or brokers can be difficult. On top of the lender arrangement fee and interest rate, many 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. You must consider the total cost of the loan rather than just the headline figures when comparing products.
  • Problems with exit – If you have problems with your method of repaying your bridging loan, this can cause major issues as the end of the loan approaches. If you are unable to repay the loan at the end of the term, you will have to refinance or service the loan, although there is no guarantee your lender would allow you to do either. This can put your property and credit profile at serious risk.

Who Would Qualify for a Bridging Loan?

There is fierce competition between bridging loan lenders, with more lenders opening their doors every day. As such, there is a lender for almost every situation. Poor credit history is usually not a barrier, your income isn’t always important.

If you own a property or land, have a realistic way of repaying the loan and have sufficient equity then there is a very good chance that you will be eligible for a bridging loan.

How Much Does a Bridging Loan Cost?

The costs of taking out a bridging loan are largely made up of the interest and arrangement fees. Interest rates start at 0.43% per month but can be as high as 1.5% per month. The rate charged will depend on your circumstances and what you’re looking to do.

Lenders tend to charge an arrangement fee, usually 2% of the loan. For some larger loans, the arrangement fee may be reduced and can come in as low as 1% in some cases.

On top of the interest and fees, there may be other charges, such as asset management fees, exit fees, legal fees, valuation fees. Some brokers will also charge broker fees, although we do not.

If you’re able to repay your loan before the end of the term, you will usually have any unused interest deducted from your redemption figure. This means that you only pay for the interest used.

Details of likely costs can be found on our bridging loan rates and fees page.

Are There Any Hidden Costs?

Although we always use reputable lenders, some lenders will add in additional fees. This can make comparing the costs of 2 lenders difficult. As such, always look at the total cost of borrowing when comparing 2 lenders, rather than just the arrangement fee and interest rates.

Another key hidden cost is the lender’s default interest rate. If the loan is not repaid on time, it is considered to be in default. Most lenders charge a responsible and fair interest rate in the event of default. Some see this as an opportunity to cash in, charging high default rates of 2-3% per month, sometimes charging it back to the start of the loan. You must check and compare default interest rates when comparing different loan offers.

Bridging Loan Interest Rates

Bridging loan rates start at 0.43% per month and are usually under 1% per month in most cases. Bridging loan rates are far lower than they were even a few years ago for most situations.

The interest charged is usually retained or deducted upfront and repaid with the loan at the end of the term, or before if you’re able to.

100% Bridging Loans – Borrow Up To 100% of the Purchase Price

100% bridging finance is a short-term loan against a property with no cash deposit used towards the purchase. There are two main types of funding this, using another property or asset as extra security or buying undervalue, at say 70% of the open market value (OMV).

If a portfolio of repossessed properties valued on the open market at £1m were available to buy at £700,000, 100% of the purchase price (£700,000) would be available, in theory. Alternatively, if a client wanted to buy a property for £50,000 to renovate and sell and has no available cash deposit, he could, for example, use his own house or a buy to let property as extra security for the loan, assuming there is enough equity.

100% bridging loans usually work out at 70 – 75% of the open market value of a property. Although called 100% bridging loans, you can’t borrow 100% of the open market value unless there is another asset to use as extra security, this could be another property or a luxury asset such as a classic car.

Compare Bridging Loans

With so many new bridging finance lenders entering the market, and the differences in their pricing and fees, it’s becoming more difficult to find the best deal. That’s why we’ve built an easy-to-use comparison tool, so you can easily read through the latest market-leading products and use our bridging loan calculator to work out your likely costs.

Remember that you shouldn’t base your decision on rate alone, all fees must be considered. It’s often cheaper to choose a product with a higher interest rate if the fees are lower.

Whether you want to compare rates online and calculate your costs or talk through your circumstances with an experienced advisor, we’ve got you covered. ABC Finance Ltd. can help you through the entire process from start to finish, making the process as simple as can be.

Why Should I Work With ABC Finance?

Bridging loans can become complex. There are many bridging finance lenders and therefore understanding all of their criteria can be time-consuming. Since our inception in 2000 we have gained vast experience in securing the best possible terms for thousands of clients, across numerous bridging finance companies. We save you time and money by speaking with bridging finance companies on a regular basis and keeping fully up to date, enabling you to access the whole market and best rates through one enquiry, and we never charge upfront fees. Whether you’re a veteran or taking your first steps into the world of bridging, we believe we are an ideal partner in raising bridging finance. Talk to an expert or choose your own product online.

TALK TO AN EXPERT NOW

ABC Finance is a pleasure to deal with, consistently delivering a personal and professional service to customers and brokers alike. We have been working together for several years and highly value the mutual relationship which has been built. The team always look to go the extra mile and are constantly recognised as an experienced and specialist brokerage. Their approach to customer, broker and lender relations combined with a best in class attitude towards TCF is supported by a highly regarded management team.

Interbay testimonial imageMarc Turner – Senior Business Development Manager, InterBay Commercial

Amazing service…. you will find none better at what they do. Its not just the level of service and professionalism you get with this company its the fact you are dealing with genuine people that really do care and go that extra mile.

5 star Google imageJoe Smith, 5 star Google review
about-the-author-gary-hemming

About The Author

This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.

Gary Hemming CeMAP CeFA CeRGI CSP  -  
Commercial Lending Director

Bridging Loan Guides

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