What is bridging finance?
Bridging finance is a short-term secured loan used to bridge a gap between buying a property and arranging longer-term funding. Terms typically range from 1 to 24 months, with interest rolled up or serviced monthly.
How bridging finance works
A bridging loan is secured against property and provides fast capital, often completing within 5 to 14 days. The lender charges a monthly interest rate (typically 0.44% to 1.5%) and an arrangement fee (usually 1% to 2% of the gross loan). At the end of the term, you repay the loan via sale of the property, refinance onto a longer-term mortgage, or other agreed exit.
When to use bridging finance
Common scenarios include: buying at auction where you must complete within 28 days, purchasing a property before your existing sale completes (chain break), funding a light refurbishment before refinancing onto a buy-to-let mortgage, securing a below-market-value deal quickly, and funding planning-gain strategies where timing is critical.
Typical costs and rates
Monthly interest rates range from 0.44% to 1.5% depending on LTV, property type, borrower experience and exit route. Arrangement fees are typically 1% to 2% of the gross loan. Valuation fees, legal fees and exit fees may also apply. The gross loan includes rolled-up interest and fees, while the net loan is the amount you actually receive.
LTV and loan sizes
Most bridging lenders offer up to 75% LTV on standard residential or commercial property. Some specialist lenders offer up to 80% for experienced borrowers with strong exits. Minimum loan sizes typically start at 150,000 and there is no formal upper limit for institutional lenders.
Exit strategy requirements
Every bridging loan requires a clear exit strategy. The most common exits are: sale of the security property, refinance onto a term mortgage, sale of another asset, or development and sale. Lenders assess the viability of your exit before offering terms.
Bridging loan worked example
You are buying a property at auction for 400,000 with plans to refurbish and refinance within 9 months.
- Property value: 400,000
- Loan at 70% LTV: 280,000 net
- Monthly rate: 0.75%
- Arrangement fee (2%): 5,600
- Rolled-up interest (9 months): 18,900
- Gross loan: 304,500
- Exit: Refinance onto BTL mortgage after refurbishment increases value to 520,000
Total cost of finance: approximately 24,500 over 9 months. The exit is supported by the increase in property value after refurbishment.
FREQUENTLY ASKED
Frequently asked questions
Bridging loans can complete in as little as 5 to 7 working days for straightforward cases. Complex transactions or those requiring additional due diligence typically take 10 to 21 days.
Yes, many bridging lenders consider applicants with adverse credit. The key factors are the property security, LTV ratio and exit strategy rather than credit score alone. Rates may be higher for applicants with credit issues.
Regulated bridging applies when the security property is, or will be, occupied by the borrower or an immediate family member. Unregulated bridging is for investment or commercial purposes. Most commercial property transactions are unregulated.
Not necessarily. Most bridging loans offer retained (rolled-up) interest where the interest is added to the loan and repaid at exit. Some lenders also offer serviced interest where you pay monthly, which reduces the total cost.
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Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting.
Results are indicative and depend on lender criteria, valuation, security, credit profile, exit route and full underwriting. Commercial finance may be unregulated. Some property finance can be regulated depending on borrower, property use and loan purpose.