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Find loans that ‘bridge the gap' between buying and selling

A bridging loan can help if you need short term finance to fund the purchase of a new property.

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Compare lenders that offer the lowest interest rates for the loan amount and term you need.
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Last updated
November 3rd, 2023

What is a bridging loan?

Bridging loans are sometimes called "bridge loans" and span a gap in your finances. This is usually when you need to pay for something but are still waiting for funds to become available from the sale of something else.

Typically, they're used by people buying a new property while waiting for the sale of their existing home to go through. A mortgage bridging loan allows them to borrow the money required for a short time.

Like mortgages, most bridge loans are a form of secured borrowing. This means you have to have a high-value asset to get one, such as property or land.

Find out more in our guide to bridge loans.

Average time to completion[1]
58days

Types of bridging loan

Open bridging loan

These have no set repayment period, which means you can decide how much to pay off and when you’ll pay it.

The loan can be repaid whenever your funds become available, for instance, when your house sells or your inheritance probate clears. These tend to charge higher interest rates because they are riskier for the lender.

Closed bridging loan

These have a fixed cut-off based on a date when you know you will have the funds required to pay back what you owe.

Closed bridge loans are usually short-term, lasting just a few weeks or months. You’ll usually have to pay a penalty fee if you miss the deadline.

These loans are typically cheaper than open bridging loans because they present less risk to the lender.

Types of bridging loan

Open bridging loan

These have no set repayment period, which means you can decide how much to pay off and when you’ll pay it.

The loan can be repaid whenever your funds become available, for instance, when your house sells or your inheritance probate clears. These tend to charge higher interest rates because they are riskier for the lender.

Closed bridging loan

These have a fixed cut-off based on a date when you know you will have the funds required to pay back what you owe.

Closed bridge loans are usually short-term, lasting just a few weeks or months. You’ll usually have to pay a penalty fee if you miss the deadline.

These loans are typically cheaper than open bridging loans because they present less risk to the lender.

What can you use a bridge loan for?

Bridge loan financing can be used in lots of ways. These include:

  • Buying a property

  • Property development

  • Buy-to-let investments

  • Business ventures

  • Paying a tax bill

  • Divorce settlements

Why people take out bridging loans
What people are using their bridging loan for.

Pros and cons

Pros

Fast application process
You can borrow large sums
Flexible terms
The money is available quickly

Cons

High interest rates
You might need to pay fees, for example legal fees, exit fees and arrangement fees
You need a property to secure the loan
If you can't keep up with repayments, you could lose your home

What is a bridging mortgage?

A mortgage bridging loan is an example of a closed bridging loan. It can be used if you have exchanged contracts on a property but are waiting for your property sale to complete.

Open bridging loans are usually more expensive than closed bridging loans because they're more flexible. Whichever kind you choose, you need to find a way to repay your bridging finance.

Compare bridging loans for house purchases

Residential bridge loans

Bridging loans can be used when people are moving house as they're useful when you need a mortgage to buy a new property, but are waiting for the sale of your previous home to go through.

They are also used by property developers at auction. This is because developers often need to pay a deposit to secure their purchase at short notice.

If you have a business and need financing to move to a new office location, you might be interested in business bridging loans.

What are first charge or second charge bridge loans?

When you apply for bridging finance, the lender adds a "charge" to the property you're using as collateral. These charges determine which debts are prioritised if you can't repay a loan. If a property is seized and sold to pay off outstanding debts, a first-charge loan is settled ahead of a second-charge loan.

A first-charge loan is the first or only borrowing secured against a property. Mortgages are typically first-charge loans. But if you have no mortgage or outstanding borrowing on your property, a different kind of loan – like a bridge loan – can be set up as a first-charge loan.

Second-charge loans are used when there's already a loan or mortgage secured against the property. Second-charge lenders usually need permission from the first-charge lender before they can use the property as collateral.

There's no limit to the number of charges that can be registered against a property.

How to choose the best bridge loan

If you're thinking about taking out a bridging loan, it's best to compare offers from several providers to find a deal that suits you. Ask yourself:

How much do you want to borrow?

Lenders offer bridging loan financing from £5,000 up to £25 million.

How much is your property worth?

This affects how much you can borrow and the interest rate on the loan.

How long do you need the loan for?

Bridging loans can last from one month to two years.

Do you have a mortgage on your property?

An existing mortgage affects how much you can borrow with a bridging loan. It also dictates whether it's a first- or second-charge loan.

How do I apply for a bridge loan?

The following steps guide you through the process of tracking down the best rates for bridging loans and the application process. 

  • Determine the amount you wish to borrow, and for how long

  • Work out the value of your property and the amount of equity you have in it

  • Compare bridge loans using the comparison table above

  • Choose between applying online or speaking to a broker

  • Apply for the bridge loan deal you’ve chosen. Be sure to understand all the fees and additional costs by reading the small print

How much do bridging loans cost?

Bridging loans interest rates tend to be high – often between 0.4% to 2% – and are typically calculated on a monthly rather than an annual basis. This makes bridging loans an expensive way to borrow money.

What's more, because bridge loans typically charge monthly interest, a small change in the interest rate can have a significant impact on your overall cost of borrowing.

That said, interest is not always charged monthly. There are three different ways interest may be charged:

  • Monthly: you pay the interest monthly; it's not added to the original sum borrowed

  • Deferred or rolled-up: you pay the interest at the end of the loan; there are no monthly interest payments

  • Retained: you borrow the interest for an agreed period, and pay it all back at the end

Some lenders let you combine these options. For example, you could choose retained interest for the first six months and then switch to monthly interest.

Don't forget there are lots of other fees and charges that you have to pay on top of the interest. Check the costs carefully before you go ahead.

Bridging loans are an expensive way to borrow money, which is why they're useful for specific circumstances. Make sure you have a solid exit strategy.

What are the bridge loan fees?

Bridging finance comes with several additional fees on top of the interest you’ll have to pay.

These are:

  • Set-up fee: This is typically 1 to 2% of the bridge loan amount and covers the costs of setting it up. It’s also known as a facility or arrangement fee. 

  • Exit fees: If you pay back the bridge loan early, you may have to pay an exit fee – typically around 1% of the bridging finance total. Some lenders may waive this charge.

  • Administration or repayment fees: This fee is paid at the end of your bridging loan to complete the necessary paperwork.

  • Legal fees: This is usually fixed at a set rate and covers the lender’s legal fees.

  • Valuation fees: The cost of having your property valued by a surveyor.

  • Broker fees: Payable if you hire a broker to compare bridging loans on your behalf.

Other fees may also be charged, so make sure you know what these are before deciding whether to take out a bridging loan.

Alternatives to bridging loans

A bridge loan is a special type of credit that enables you to borrow a large amount of money for a short period of time. They can be useful in the right circumstances, but it's also worth considering whether another type of financing might better serve your needs. Alternatives to bridge loans include:

  • Second mortgage: You could look into getting a second mortgage.

  • Remortgage: You could remortgage your current home to free up some money.

  • Secured loan: Here's how secured loans work.

  • Personal loan: You could check if a personal loan could work for your needs.

  • Let to buy: If you want to buy a property and the sale of your first property falls through, a let to buy mortgage could be worth considering.

FAQs

How much can you borrow with a bridge loan?

It depends on your credit rating and the value of the property you're using as collateral. There's technically no upper limit, but most banks won't lend more than £25 million, although some specialist providers may offer even more. The lower end of the range is around £5,000.

Do I have to be a homeowner to get a bridge loan?

No, you don't have to be a homeowner to get a bridge loan, but because they are secured loans you need an asset to use as security. For example, some lenders consider land as security for a loan.

How long does a bridging loan take to approve?

In terms of how long it takes for a bridging loan to be approved, in many cases you’ll discover within 24 hours. If successful, you may find the money is transferred to your account within two weeks. 

Do I need a deposit for a bridging loan?

Yes, you do need a deposit for a bridging loan. Most lenders generally require a deposit or equity in the property you're purchasing. How much that is varies from lender to lender. Typically, this can range from 20% to 40% of the value of the property.

Can I get a bridging loan if I have bad credit?

Yes, some lenders will still consider your application even if you have bad credit, although your loan could be more expensive.

Do I need a first charge or second charge loan?

If you have a mortgage or loan on your property you need a second charge loan. If there is no borrowing outstanding you can look at first charge loans.

Is a bridging loan more expensive than a mortgage?

Yes and no. Bridging loans are charged on a monthly basis, with rates between 0.5% and 0.8% common. Mortgages charge interest annually - with the best deals on the market significantly cheaper than that in terms of pure interest.

However, mortgage terms are far, far longer. Meaning while the APR might be lower, over the course of the loan you'll pay a lot more in interest.

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About the author

James Andrews
James has spent the past 15 years writing and editing personal finance news, specialising in consumer rights, pensions, insurance, property and investments

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References

1. Bridging Trends UK bridging finance market during Q2 2023