Property purchases don’t always go to plan.
Your buyer might pull out at the last minute, leaving you stuck. Maybe you’ve spotted the perfect renovation project, but traditional lenders won’t touch it. Or perhaps you’re eyeing an auction property that needs completing in 28 days.
These situations need quick thinking and even quicker finance.
That’s where bridging loans come in. They’re designed to get you through those tricky periods when standard financing options aren’t suitable or simply take too long.
In this guide, we’ll walk you through everything you need to know about bridging loans. You’ll learn how they work, what they cost, and whether they might be right for your situation.
What is a Bridging Loan?
A bridging loan helps you ‘bridge’ a financial gap in property transactions.
They are temporary loans secured on property.
These loans typically run from 3 to 24 months. Unlike regular mortgages with monthly payments, bridging loans are normally repaid in one go at the end of the term, along with the accrued interest and fees.
Speed sets bridging loans apart from standard mortgages.
While mortgages often take 6-8 weeks to arrange, you can sometimes get a bridging loan sorted in just a few days. This quick turnaround comes with higher interest rates, but the speed can make it worthwhile in the right situations.
Types and Options
Bridging loans come in several forms, each suited to different needs:
Closed-term loans link to a specific repayment date, often matching the completion date of a property sale. These generally offer better rates because lenders have more certainty about repayment.
Open-term loans give you more flexibility, without a fixed repayment date (though they’ll have a maximum term, usually 12 months). While useful when your timeline isn’t certain, this flexibility typically means paying more in interest.
Read more: What’s the Difference Between Open and Closed Bridging Loans?
First and second charge options matter too. A first charge means your bridging loan is the only loan secured against the property. A second charge applies when there’s already a mortgage in place. First charge loans usually come with better rates as they’re less risky for lenders.
The Financial Conduct Authority (FCA) regulates bridging loans for properties you’ll live in. These regulated loans offer extra protection but can’t run longer than 12 months.
Business or investment loans don’t need regulation.
Get access to expert brokers and specialist bridging lenders
Common Uses
Bridging loans solve various property-related challenges.
Here’s when they’re often used:
Moving home when a buyer drops out – you’ve found your perfect new place, but your buyer’s purchase falls through. A bridging loan lets you complete your purchase while finding a new buyer for your current home.
Read more: How To Use Bridging Finance To Break A Property Chain
Auction purchases need quick completion – usually within 28 days. Standard mortgages rarely work with such tight deadlines, making bridging finance a practical choice. You can arrange the loan before bidding, giving you confidence at auction.
Read more: How to finance an auction property purchase
Property renovation often needs special funding. When a property needs significant work before mortgage lenders will consider it – perhaps missing basic facilities or needing structural repairs – bridging finance helps you buy and improve it before switching to a standard mortgage.
Business premises sometimes need quick purchase. Commercial property deals often come with tight deadlines. Bridging finance gives you the speed to secure retail units, offices, or industrial spaces when timing matters.
Developers use these loans while seeking planning permission. They can buy sites quickly, then either sell at a profit once permission arrives or move to development finance for construction.
Understanding Costs
Bridging loans cost more than standard mortgages, but they can make financial sense in the right situation.
Monthly interest rates depends on your circumstances and the strength of your application.
You can handle interest payments in different ways. Some borrowers pay monthly, while others add it to the loan and pay everything at the end. You can even borrow the interest payments upfront.
The total cost includes several elements. You’ll pay an arrangement fee, 2% of your loan amount. Property valuation costs vary with property value. Legal work needs doing for both sides. Some lenders charge exit fees too.
Getting Approved
Bridging lenders look at things differently from mortgage providers. They focus mainly on your property and repayment plan.
You need to be over 18, though most lenders prefer 21+. While UK residency is standard, some lenders consider expats or foreign nationals. Company borrowing needs UK registration.
Properties of all types can work as security.
Houses, flats, shops, offices, mixed-use buildings, and land all qualify. Even properties needing major work can be acceptable – that’s a key difference from regular mortgage lenders.
Your credit history matters less than with standard mortgages. While good credit helps, lenders care more about your property’s value and how you’ll repay. Even past credit problems might work if your overall application is strong.
For basic residential bridging, you won’t need previous experience. However, complex development projects or commercial deals might need a proven track record.
Related reading: Can You Get a Bridging Loan to Buy a House?
Application Steps
Getting a bridging loan moves faster than mortgage applications, but follows clear steps.
Start by talking with a specialist broker who’ll ask about your borrowing needs, property details, timeline, and repayment plans. They’ll find suitable lenders and initial terms.
Your property needs valuing – usually done quickly by surveyors who understand bridging timelines. The legal work runs parallel, with your solicitor and the lender’s team handling property charges, searches, and completion details.
The whole process typically takes 7-14 days from first chat to receiving funds. Simple cases can be quicker. Timing depends on valuation scheduling, search speeds, legal complexities, and any unusual aspects.
Read more: How quickly can you get a bridging loan?
Repayment Planning
Your repayment plan needs to be solid and realistic. Lenders want to see clear evidence that you can pay back the loan on time.
Selling property stands as the most common repayment method. If this is your plan, lenders check the property’s value against recent local sales. They’ll want to know about your marketing plans and timeline.
Many borrowers plan to switch to a standard mortgage. This works if you can show you meet the new lender’s requirements, the property will meet their standards, and you can afford the payments.
Business profits or investment returns can work too, but you’ll need strong proof of expected income. Smart borrowers also have backup plans ready.
Read more: What are some common exit strategies for bridging loans?
Benefits and Risks
Bridging finance offers clear advantages.
You get quick funding when traditional lenders move too slowly. The flexible criteria help with properties that standard mortgages won’t touch. If you choose rolled-up interest, you won’t make monthly payments.
These loans help secure opportunities that might otherwise slip away.
But consider the downsides. Interest rates run higher than standard mortgages. Fees add up quickly. If things go wrong, you risk losing your security property. Short terms mean less time to fix problems. These loans work for temporary needs, not long-term borrowing.
Next Steps
If bridging finance interests you, here’s what to do:
Talk to a specialist broker who knows the market inside out. Get your paperwork sorted – ID, property information, and repayment plans. Be clear about when you need funds and when you’ll repay. Consider independent legal advice. Make sure you understand all costs involved.
While bridging loans solve many property financing challenges, they’re not right for everyone. Take time to weigh up your options. Consider both costs and risks before moving forward.
Need help finding an experienced bridging loan broker? We can connect you with professionals who know the market well. Just give us a call.
Frequently Asked Questions
The minimum for our brokers is £150,000.
The most common amount is 25% of the property value. Our brokers have access to schemes that only need a 20% deposit, and for those lenders that don’t do a credit check it’s 30%.
Read more: Do you need a deposit for a bridging loan?
Yes, many lenders focus more on your property’s value and exit strategy than credit history. However, certain types of adverse credit can affect your interest rate.
Read more: Can you get a bridging loan with bad credit?
Almost any property type including residential, commercial, mixed-use, land, and even non-standard construction properties.
Read more: What Properties Can A Bridging Loan Be Secured Against?
Common fees include arrangement fees (2%), valuation fees, legal fees, and sometimes exit fees. Always check the total cost with your broker.
Related reading: How to Get a Bridging Loan
Yes, you’ll need a solicitor, and the lender will appoint their own. They handle legal charges, searches, and completion.
Read more: Do I Need a Solicitor for a Bridging Loan?
Despite meticulous planning and preparation, things can go wrong. So if your repayment exit strategy is delayed what are your options?
First, it’s a good idea to approach your lender and explain the issue. It may be possible to arrange for a loan extension, although they may then put the rate up!
There’s no guarantee that this will be approved so you may need to look elsewhere for finance. This could be ‘remortgaging’ the bridge loan, or accessing equity in another property you own.
Read more: Can You Pay Off a Bridging Loan with Another Bridge?
