A bridging loan is a type of short-term loan which is arranged for 1-36 months and is used to provide a fast cash injection while waiting for other funds. It is a form of property finance that is used to bridge the gap between two events happening, such as purchasing one property, and another being sold.
Bridging loans were first offered in the 1960s by large banks and building societies to fund property purchases before the borrower’s existing property was sold. Bridging loans are now a very popular form of finance and are offered by a wide range of specialist lenders.
The bridging loan market has grown to become a £4.8bn industry as of 2022 and is continuing to grow. While this is a large number, the bridging market is still quite niche compared to the mortgage market which is currently a £1,613bn market.
A bridging loan allows you to borrow money quickly and is paid to you as a lump sum for a property purchase or refinance. Once your bridging loan has been arranged, your interest charges are usually ‘rolled up’ into the loan, leaving you with no monthly interest payments to make. This is often referred to as retained interest.
At the end of the loan term, the bridging loan is repaid in full, along with any interest and outstanding charges, and the legal charge is removed from your property. Repayment of a bridging loan is usually funded through the sale of your property or by taking out a remortgage. Your plan for repaying the loan is known as your exit strategy.
Loan to value (LTV) and equity are key to securing this type of finance, with lenders focusing on these two points to assess new loans. Most lenders are happy to offer a maximum of 75% of the property value on a regulated bridge, although some will extend this to 80% for an unregulated bridge (a bridge loan that is not regulated by the Financial Conduct Authority (FCA)). The LTV offered may be lower for a second charge loan.
Yes, a bridging loan is a replacement for a mortgage. They are a short-term form of alternative funding that is used when a mortgage wouldn’t be available, but you need to borrow money against a property.
This can be because the property isn’t mortgageable, you need the funds to purchase a new property quickly, or you have a short-term financial gap that needs to be filled, for example using a bridging loan for a house purchase before your existing one sells.
Anybody can borrow money using these loans if they have a property with enough equity in it. We can arrange bridging loans for individuals, partnerships, LLPs, Limited Companies, SPVs, Trusts and overseas borrowers from our wide panel of lenders.
Bridging loan interest rates are currently between 0.5-1.25% per month.
Interest rates can vary depending on how much equity you have in your property, the loan to value (LTV) required, if you take a fixed rate or variable rate product and whether you have bad credit. In some cases, large loans (those over £1,000,000) may get a better rate.
Whether a product is fixed rate or variable rate is often not published, so if this is important, ask us. Variable interest rates see your monthly interest increase or decrease in line with changes in the Bank of England Base Rate.
The average cost of a bridging loan is between 6-12% per annum. The difference in cost is decided by the loan to value, the applicant’s credit history, property type and your plans for the property. The strongest applications will benefit from the lowest costs. These are applications below 50% LTV with a clear credit history that are secured against residential property.
While bridging loans cost more than a traditional mortgage, they also offer you more opportunities to profit from property. This can be through grabbing a bargain by completing quickly or adding value through property development or refurbishment.
We can arrange a bridging loan in 5-21 days – sometimes faster where your requirement is urgent.
The speed with which your bridging loan application is arranged will depend on the lender chosen, the simplicity of your circumstances and how quickly you answer questions and return documents to us.
Yes, a bridging loan is generally available for borrowers who have bad credit. This can include defaults, CCJs, mortgage arrears, IVAs, debt management plans and even previous bankruptcy.
We can arrange loans from £50,000 up to £20m.
Your maximum borrowing will depend on your property value, available equity, lender chosen and property type (for example, residential, semi commercial, commercial or land).
They can be risky; however, most aren’t. The key is knowing exactly how you will repay the funds, giving yourself sufficient time to repay and making sure you always have a back-up plan available.
This is known as your exit strategy and is something that you should consider before even making an application.
A good broker will help you to find the best deal on your bridging loan and can save you a lot of time and money.
Even the big money comparison sites usually pass on enquiries for this type of funding to specialist brokers, such is their importance to the market.
Yes, regulated bridging loans are regulated by the Financial Conduct Authority (FCA). This means that your consumer rights are protected, and you have the right to mediation through the Financial Ombudsman Service (FOS), should you require it. Regulated bridging finance tends to require a strong exit strategy and can only be offered as closed loans.
A closed bridging loan will need the exit strategy to be explained during the application process.
When you’re looking to raise funding on a residential property, commercial property or even land, most lenders will consider various exit strategies (how you plan to pay back the loan).
Common exit strategies include:
A bridging loan can be secured against the following:
In addition to the interest charged, there are several fees that are payable when setting up a new bridging loan.
The main costs can be broken down as follows:
Fees tend to range between 1-3% of the loan amount on bridge finance, however most lenders charge a 2% set-up fee when the loan is set up. This fee can usually be added to the loan. The fee is sometimes reduced for larger loans.
Broker arrangement fees vary depending on the complexity of the transaction and work involved. Contact us today for your bespoke quote and further information.
Valuation fees are payable where a valuation is required. The fee generally covers a basic survey of the property. Where heavy refurbishment works are being undertaken, the lender may insist on a more detailed report. Some bridge loan lenders do offer desktop or automated valuations (AVM) and there is usually no charge for this
In most cases, you have to pay the lender’s legal fees in addition to your own. These fees vary depending on the size of the loan, the number of properties that you’ll be securing against and the type of property itself.
Some bridging loan lenders charge an additional fee when the loan is repaid, usually 1-2% of the loan amount. Where possible, we avoid using lenders who charge exit fees.
Choosing the best product for your needs is essential when securing a loan against your property because it’s a major
To compare bridging loans with each other you should consider the total cost of each product, rather than just the
A bridging loan is a type of short-term loan which is arranged for 1-36 months and is used to provide
A closed loan is one that has a clear exit strategy defined from the outset, meaning the lender is clear on how you will repay the loan. A closed bridging loan gives the lender added comfort that the loan will be repaid on time and as such, they can offer a lower rate due to the increased security.
As a closed bridging loan has a set term, the interest can usually be added to the loan, meaning there are no monthly repayments to make.
An open bridging loan has no defined exit strategy and usually has an open-ended, or very long loan term. As an open bridging loan means that it has no defined exit date, they usually don’t allow rolled-up interest.
Although open bridging loans are more flexible and have no fixed repayment date, they don’t offer the lender as much security around the exit, and as such usually come with a higher interest rate than closed products.
A first charge bridging loan is a facility that is secured by way of a first legal charge over your current property. This means that there is no other secured loan debt outstanding on the property, such as a mortgage. When taking out a first charge bridging loan against your own home, your funding will be regulated by the Financial Conduct Authority (FCA).
A (FCA) regulated bridging loan comes with more protection for the borrower, but this comes at a cost of slightly reduced flexibility. First charge rates are usually lower than those offered on second or third charge loans.
Second charge loans are ones that are secured against a property that already has a legal charge or outstanding mortgage secured against it. Second charge loans usually require consent from the first charge lender, although this can be avoided using an equitable charge.
The rates and fees that you can expect to pay a bridging loan lender on second charge loans are usually higher than first charge loans. That said, it may still work out cheaper if it allows you to retain a first charge loan at a very low rate.
These are loans that are secured against your own home on a first charge basis. The term regulated refers to the fact that the Financial Conduct Authority (FCA) provide increased consumer protection on these loans.
Unregulated bridge loans are those secured against an investment property or loans for business purposes. Second charge bridging loans are also unregulated.
Commercial bridging is a specialist type of bridge finance that is secured against commercial property.