Updated Date: 22 January 2021

Bridging or bridge loans 'bridge' the gap when you need to pay for something, but you're waiting for funds to become available.

They're often used by people who are taking out a mortgage to buy a property, but are waiting for the sale of another property to go through. A mortgage bridge loan allows them to borrow the money required for a short time.

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

Find out more in our guide to bridge loans.

How does a bridge loan work?

There are two types of bridge loans:

Open bridging loan

These have no set end date. This means they can be repaid whenever your funds become available. They usually last for up to a year, and sometimes even longer.

Closed bridging loan

These have a fixed end date. This date is usually based on when you know you'll have funds available to pay back what you know. They're usually short-term bridging loans, lasting just a few weeks or months.

Bridging mortgage

A mortgage bridging loan is an example of a closed bridging loan, as it could 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 an 'exit route' a way to repay your bridging finance.

If you want more security you can compare regulated bridge loans here.

What can you use a bridge loan for?

Bridge loan financing could be used for lots of reasons. These include:

  • Buying a property

  • Property development

  • Buy-to-let investment

  • Business ventures

  • Paying a tax bill

  • Divorce settlements.

Bridging loans are often used by those who are taking out a mortgage to buy a house, but are waiting for the sale of their previous home to go through. You can compare bridging loans for house purchase here.

Bridge loans are also used by property developers at auction. This is because they 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 can compare business bridging loans.

Residential bridge loan

Bridging loans are also becoming popular with people who are moving house.

How to choose the best bridge loan

If you're considering a bridge loan, it's best to compare bridging loans from several providers to find a deal that suits you. When comparing bridge loans, here are a few things you may want to think about:

  • How much you want to borrow: Lenders offer bridge loan financing from 5,000 up to 25 million.

  • How much your property's worth: This affects how much you can borrow and the bridge loan rates you'll get.

  • How long you need to borrow for: Bridging loans can be as short as one month, or as long as two years.

  • Whether you have a mortgage on your property: This affects how much you can borrow through a bridge loan. It also affects whether you can look at first charge or second charge 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 security. These charges set the priority of debts if you can't repay your loan. If a property was seized and sold to pay off outstanding loans, a first charge loan would have to be paid first before a second charge loan could be paid back.

When you apply for bridging finance, the lender adds a 'charge' to the property you're using as security. These charges set the priority of debts if you can't repay your loan. If a property was seized and sold to pay off outstanding loans, a first charge loan would have to be paid first before a second charge loan could be paid back.

First charge loans are where the bridge loan is the first or only borrowing secured against your property. Mortgages are normally 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 your first charge loan.

Second charge loans are where there's already a loan or a mortgage against the property. Second charge lenders usually need the permission of the first charge lender before they can be added.

There's no limit on how many charges can be listed on a property.

Bridge loan rates

As with most loans, the interest rates on bridge loans can be fixed or variable.
With a fixed rate, the interest is fixed across the term of the bridge loan. This means all the monthly payments will be the same.

With a variable rate, the interest rate can change. The lender sets the variable rate, usually in line with the Bank of England base rate. This means your payments can go up and down.

How much can you borrow with a bridge loan?

It depends on your credit rating, the value of the property you're using for security and the value of the property against the bridge loan. But the maximum a bank will lend in bridging finance can vary greatly, ranging from 50,000 to 25 million and beyond.

How much do bridging loans cost?

Bridging loans can be an expensive way to borrow money. That's because bridge loan rates tend to be pretty high and are often calculated on a monthly basis, rather than an annual basis. They could range from around 0.4% to 2%.

Unlike a mortgage, bridge loans don't last very long. They're essentially meant to 'tide you over' for a few weeks or months. As they are short term, bridging loans usually charge monthly interest rates rather than an annual percentage rate (APR). This means that just a small difference in the interest rate can have a big impact on the overall cost of your bridge loan.

But the interest is not always charged monthly. There are three main ways it can be charged. These are:

  • Monthly: You pay the interest monthly and it's not added to your bridging finance.

  • Deferred or rolled up: You pay all the interest at the end of your bridge loan. There are no monthly interest payments.

  • Retained: You borrow the interest for an agreed period, and pay it all back at the end of the bridge loan.


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'll have to pay on top of the interest too. You'll need to check the costs carefully before you go ahead.

Bridge loan fees

Interest isn't the only cost on bridging finance. Bridge loan costs can include several types of fees. These are:

  • Arrangement or facility fee: What you pay for setting up the bridge loan. It's usually around 1 to 2% of the loan.

  • Exit fees: This is usually around 1% of the bridge loan if you pay it back early. Not all lenders charge an exit fee.

  • Administration or repayment fees: This is what you pay for the paperwork to be completed at the end of your bridging finance.

  • Legal fees: This pays the lender's legal fees. It's usually charged at a set rate.

  • Valuation fees: This pays for the surveyor to value your property.

  • Broker fees: If you use a broker, this pays for their work in looking at bridging loans for you and choosing the best bridge loans for you.

There might be other fees too, so bear this in mind before you decide if bridging finance is right for you.

What is APR?

APR (Annual Percentage Rate) is a type of interest rate offered by lenders and banks. It includes the interest rate of the product, but also takes into account any fees. Therefore it is generally best to look out for the advertised APR when comparing, so that you know exactly what you will be earning or paying.

APR must include all mandatory fees, however it does not include voluntary ones, even if they require an opt-out.

How to apply for a bridge loan

Here's a step-by-step guide on finding the best bridge loans and best bridging finance rates, and doing your application.

  1. Decide what you need from your bridge loan. How much do you need to borrow? How long do you need to borrow it for?

  2. Gather the important details about your current situation. How much is your property worth? Do you have a mortgage? How much is your mortgage and how much equity is in your home? You'll need all this information to find cheap bridge loans that fit your needs.

  3. Use the comparison table at the top of this page to compare bridge loans and find the best bridge loan rates for you.

  4. Decide whether you want to speak to a broker or apply online.

  5. Pick which bridge loan to apply for. Read the small print to find out about all the costs and fees.

  6. Once you've applied, wait to hear whether your application's approved. This could take 24 hours.

  7. If you're approved, wait for your bridge loan money. This could take up to two weeks.

How long does it take to get a bridge loan?

It's pretty quick to apply for a bridge loan. After you compare bridge loans and find the best bridge loan rates you can do your application online. You'll usually find out if your application's been approved within 24 hours.

Once your application's approved, the money could be in your account within two weeks. This is because it takes time to have your property valued, for the lender to do their checks, and for the money to be transferred.

If you need the money sooner, you might be able to pay extra to have your bridge loan processed faster.

Bridge loans for bad credit

Many lenders will still consider your application for bridging finance even if you have bad credit. But, as you're seen as a more risky customer, your loan might have a higher interest rate. This will make it more expensive. You're unlikely to be able to get the very best bridge loan rates if you have bad credit.

Bridge loan lenders

There are lots of different places you could get a bridge loan from. These range from major world banks, to small, specialist lenders. You'll see a list of the best bridge loans and compare bridging loans from different companies in the comparison table at the top of this page.

A broker could help you find the right bridging finance. They may charge a fee, but they'll probably be able to find you the very best bridging loan rates.

Pros and cons of bridge loans

As with most things, bridging loans come with pros and cons.

The pros are that the application process is fast, you can borrow large amounts and that the borrowing is flexible. Plus, you'll get the money pretty quickly.

The cons of bridging loans are that the interest rates and fees are high, and the loan's secured against your property. That means you risk losing your home if you can't pay your bridge loan back.

Alternatives to bridging loans

Bridge loans are quite specialist in that you borrow money for a very short time. There are some alternatives to bridging finance, though. These 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.

Bridging loan FAQs

Q

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

A

No, 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.

Q

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

A

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

Q

Do I need a first charge or second charge loan?

A

If you have a mortgage or loan on your property you need a 2nd charge loan. If there is no borrowing outstanding you can look at 1st charge loans.