Bridging Loans vs Mortgages

While both products are a type of loan which is secured against property or land, there are a number of distinct differences between the two.

In this article we break down those key differences to help you to understand exactly how each product should be used to produce the best outcome for borrowers.

Bridging Loans vs Mortgages: Key Differences Explained

There are several key differences between mortgages and bridging loans. While both are types of secured property finance, they are very different products.

The first key difference is the term of each product. Mortgages are a long-term finance product, often taken for a term of anything from 5 to 25 years. On the other hand, bridging loans are usually taken for anything from 1 to 12 months.

The second is how long each product takes to complete, the mortgage application process is quite involved and usually takes around 8-12 weeks to complete. Bridging loans are a fast and simple product to secure, with applications regularly completing in 5 days to 3 weeks.

There is a difference in how interest is handled, with mortgages usually repaid through regular monthly repayments. On the other hand, bridging finance interest is usually deducted from, or added to the loan, leaving you with no monthly repayments to make.

Flexibility is a key difference, with mortgage lenders working to strict criteria, whereas bridging is offered on a case by case basis and often crafted to your requirements.

The costs associated with mortgages tend to be lower than those on bridging finance, with lower interest rates and often lower fees. This is due to the flexible and fast nature of bridging, which is simply designed for a different purpose.

Comparison Table: Speed, Cost, and Duration

	Mortgages	Bridging loans
Speed	8-12 weeks	5 days to 3 weeks
Cost	Lower rates and fees	Slightly higher rates and fees
Term	5-25 years	1-12 months
Flexibility	Inflexible	Highly flexible
Monthly interest	Paid each month	Usually paid at the end
Uses	Property purchase or refinance	Property purchase, refinance, chain break, property refurbishment, extension or conversion or almost any other reason.

When to Use a Bridge Instead of a Mortgage

As is most likely clear by now, bridging and mortgages are very different products, but there is no best product. Each can be highly useful when used properly. The key is understanding when to use a bridge instead of a mortgage. The key circumstances are:

Chain break

A chain break bridging loan allows you to purchase a property before selling your existing one. A traditional mortgage would be unsuitable for this purpose as the borrower must pass affordability checks for both mortgages, which is unrealistic in most cases.

Property refurbishment projects

For property refurbishment projects, bridging finance is ideal as it allows you to borrow against both the existing value of the property, and in many cases, the full refurbishment costs (where this meets lender criteria).

This allows property investors to profit from their project before refinancing or selling the completed property and progressing with the next project.

When speed is important

Quick property transactions are bread and butter for bridging lenders, with many lenders specialising in very quick completions.

Mortgages can take a long time and have a very involved application process, making them unsuitable, especially when looking to complete in under 1 month.

Buying an unmortgageable property

When buying an unmortgageable property, mortgage lenders, by definition would not be happy to lend.

This is where bridging lenders can take a pragmatic view, and lend the money to purchase the property, and in many cases fund the works required to restore it to a mortgageable state.

Below market value purchases

Below market value purchases, also known as BMV can often be 100% funded by bridging lenders, enabling you to purchase without the need for a deposit. While residential mortgage lenders tend to work from the lower of the purchase price or value, many bridging lenders are happy to lend against the full open market value, regardless of the purchase price.

Auction purchases

Auction purchases are usually subject to a 28 completion deadline, and require you to exchange contracts when the hammer drops. This, combined with a 10% deposit upon exchange means you could face significant financial loss should you fail to complete on time.

Bridging loans can comfortably be completed in 28 days, while mortgages very rarely do, meaning a bridge is the only sensible option.

Stopping repossession

When facing repossession, bridging finance can be used to repay your mortgage lender and allow you sufficient time to sell your property, avoiding repossession and protecting your credit history.