Bridging Loans, Your Comprehensive Guide to Short Term Financing

What is a bridging loan?

A bridging loan is a short-term finance option designed to help you move from one property to another when the timing doesn’t line up. You might want to buy a new home before you’ve sold your current one. You could be planning a renovation project that needs immediate funds. Or, perhaps you’ve found a dream home at auction but haven’t yet secured a traditional mortgage. In each of these situations, a bridging loan can provide quick access to cash to bridge that temporary gap.

Unlike a standard mortgage, a bridge loan mortgage typically offers faster approval and more flexible conditions. This flexibility, however, can come with higher rates and fees. Because bridging loans are meant to be short-term solutions—often 12 months or less—lenders charge higher interest in exchange for speedy funding.

How does a bridging loan work?

How does a bridge loan work in practice? Generally, the lender takes security over property you already own (or the one you plan to purchase). You’ll provide details such as equity, property value, and an “exit strategy” (the method by which you intend to repay the loan). One of the most common exit strategies is selling your existing home and using the sale proceeds to pay back the bridging facility.

In many cases, borrowers can secure up to 80% of the combined value of both properties, although lender policies vary. Some bridging loans allow you to add interest into the loan itself, known as “rolled-up interest.” This means you won’t pay monthly interest bills but instead repay both principal and accumulated interest when you sell your property or arrange a longer-term mortgage. For people who need immediate liquidity, bridge finance loans can be especially helpful, provided there’s a clear plan to repay within the agreed term.

Common uses and benefits

1. Buy before you sell
   It’s often difficult to time both transactions perfectly. A bridging loan covers the gap so you don’t miss out on your next home.
2. Auction purchases
   Auctions require quick turnarounds—often you have to come up with funds in a matter of days. A bridging loan can finalize that purchase.
3. Property refurbishment
   If the property you’re buying is in poor condition (no kitchen, structural issues, etc.), many traditional lenders refuse to provide mortgages. A bridging loan can fund initial repairs or renovations quickly.
4. Chain breaks
   Sometimes your buyer withdraws at the last minute, leaving you in limbo. A bridging facility can keep your onward purchase alive.

Advantages include speed (funding can happen in days) and flexibility (lenders can be more lenient about credit or proof of income). The rates, however, are typically higher than standard mortgages. Plus, there may be arrangement fees, valuation costs, and legal charges. If you cannot repay the facility as scheduled, you risk default—and possibly the forced sale of your property.

Bridging loan rates and fees

Because bridge loan rates tend to exceed those of long-term mortgages, you must carefully weigh the total expense. For example, monthly interest might start around 0.39% to 0.59% for certain deals, with some stretching higher depending on the loan-to-value (LTV), property type, and your credit history.

You’ll also encounter:

• Arrangement (or facility) fees: Typically 1–2% of the total loan.
• Valuation fees: Charged by surveyors to assess the property’s worth.
• Legal fees: Covering the cost of preparing loan agreements and registering security on the property.

Some lenders offer a bridge loan calculator on their websites so you can estimate total costs. However, keep in mind these are ballpark figures—your actual rate can vary significantly based on property location, condition, and the lender’s risk tolerance.

Regulated vs. unregulated bridging loans

• Regulated bridging loans
  These loans are overseen by financial authorities and typically involve a property you or your immediate family occupy, or plan to occupy. If you want to use your primary residence as security, or you’re bridging the purchase of your next home, this often falls under a regulated framework. Fewer lenders offer regulated bridging, so terms may be stricter.
• Unregulated bridging loans
  If the property is purely for investment or commercial purposes—such as a buy-to-let or farmland—then it’s considered unregulated. Lenders have more flexibility with these facilities, but they also carry different risks and fewer consumer protections.

Qualifying for a bridging loan

To get a bridge loan mortgage, lenders generally check:

1. Equity: If you already own property or have substantial equity in your current home, you’re more likely to be approved.
2. Exit strategy: You need a realistic plan for repayment. Will you sell your current home, refinance into a longer-term mortgage, or use business revenue?
3. Credit and background: Some lenders are lenient if you have imperfect credit, but they still want reassurance that the loan will be repaid.

Applicants with higher LTV requests or complicated finances may see steeper rates or additional security requirements.

Repayment and risks

Bridging loans often last around 6–12 months, sometimes extending to 24 or 36 months. You can structure repayments in several ways:

• Monthly payments: Pay interest each month, then pay the principal at the end.
• Rolled-up interest: Add interest to the balance, paying it all at the final settlement.
• Retained interest: Borrow enough upfront to cover your interest costs, so you effectively pay no monthly bills.

Remember that bridging loans can be expensive. If the property doesn’t sell in time or your refinancing option falls through, you could face penalties or lose the secured property. Always prepare backup plans, be realistic with property valuations, and factor in extra time for potential sale delays.

Pros and cons at a glance

Pros

• Quick access to funds, often within days.
• Flexible underwriting, which may accommodate poor property condition or prior credit issues.
• Ideal for scenarios where traditional mortgages aren’t viable (auctions, short-term bridging, refurbishment).

Cons

• Higher interest rates and fees than standard mortgages.
• Two sets of monthly payments if you still have an existing mortgage.
• Could be risky if your exit strategy is uncertain.

Is a bridging loan right for you?

Before you sign:

• Compare alternatives like a remortgage, home equity line of credit, or personal loan if the amount needed is smaller.
• Consider the total cost, not just monthly interest, but also arrangement and legal fees.
• Look for reputable lenders. Some bridging finance options are regulated, while others are not.

If you decide a bridging loan is the best move, gather key documents—like current mortgage statements, proof of income (if needed), a property valuation—and consult both a lender and, ideally, a financial advisor. A bridging facility can smooth out an otherwise stressful gap in financing, but only if used with caution and foresight.