The choice between a bridging loan and a mortgage isn’t always straightforward – each has its place in property finance.
A bridging loan might help you move quickly on an opportunity, while a mortgage will offer long-term stability. Your circumstances, timeline, and property goals all play a part in determining which option makes more sense for you.
In this guide, we’ll look at how these two types of property finance compare, helping you understand which might be the better fit for your situation.
We’ll cover everything from how they work to when you might choose one over the other, making it easier for you to make a decision.
Understanding Both Types of Property Finance
Mortgages
Let’s start with mortgages – something most people are familiar with.
A mortgage lets you borrow money to buy (or refinance) property, paying it back over many years.
If you’re buying a home or investment property in the UK, you’ll usually spread these payments over 25 to 35 years, making monthly repayments that cover both the amount borrowed and the interest.
Bridging loans
Bridging loans work very differently, aren’t as widely used and are often misunderstood.
They’re short-term loans that help you ‘bridge’ or cover a gap in funding, often for just a few months up to about a year and a half.
You might use one to buy a property quickly, perhaps before your current home sells or to snap up an auction property you can’t miss out on.
There’s no need for monthly payments, everything is paid back in one lump sum at the end.
The key thing to remember is that mortgages and bridging loans serve different purposes.
A mortgage offers stability for long-term property ownership, while a bridging loan provides quick, flexible funding when you need to move fast or bridge a temporary funding gap.
Key Differences Between Bridging Loans and Mortgages
Loan Term
One of the main things that sets these two types of property finance apart is how long you can borrow for.
With a mortgage, you’re looking at a long-term commitment – most people choose between 25 and 35 years. This longer term helps keep your monthly payments more manageable.
Bridging loans are only available for short durations.
You’ll usually have anywhere from 3 months to 24 months to repay the full amount. This shorter timeframe works well if you’re waiting for a property sale to complete or planning quick renovations before selling on.
Application and Approval Process
Getting a mortgage takes time – often 6 to 8 weeks from application to completion.
Lenders need to check your income, review your credit history, and carry out detailed affordability assessments. They’ll want to see payslips, bank statements, and proof of your deposit.
Bridging loans move much faster – sometimes in as little as a week.
Instead of focusing heavily on your income and affordability, lenders look at your property and your plan for repaying the loan.
You’ll still need some paperwork, but the process is more streamlined. We have access to some non-status lenders where there are no income checks and no credit checks.
Property condition
Mortgage companies will always want to lend against a structurally sound property that is habitable upon completion.
Bridging lenders are less fussy, and will accept run-down properties and those that require underpinning or structural work.
Repayment Structures
Residential mortgages are set up with regular monthly payments combining capital and interest – this helps spread the cost over the term. You’ll know exactly what you need to pay each month, making it easier to budget.
Investment backed mortgages (buy to let) are generally arranged on an interest-only basis.
Bridging loans offer more flexibility with repayments.
You might choose to pay the interest monthly, but many borrowers opt to ‘roll up’ the interest and pay everything – loan amount and interest – when the term ends.
This helps with cash flow if you’re renovating a property or waiting for a sale.
How you plan to repay a bridging loan (your exit strategy) is a key part of the application.
This might be through selling a property, refinancing to a mortgage, or using other incoming funds. Lenders want to see a clear, realistic plan for repayment.
Early repayment works differently as mortgages often come with early repayment charges, especially if you’re on a fixed rate.
Bridging lenders tend to be more flexible and many lenders let you repay early without penalties.
Let’s talk bridging loans!
When to Choose a Bridging Loan
Bridging loans really shine in situations where speed and flexibility matter more than long-term cost.
Say you’ve found your perfect new home but haven’t sold your current property yet.
Rather than risk losing out, a bridging loan could help you to buy the new property while you wait for your existing one to sell. This breaks the property chain and puts you in a stronger position as a buyer.
Auction properties are another prime example.
When you win a bid at auction, you’ll need to pay a 10% cash deposit and the rest within 28 days – far quicker than a standard mortgage can be arranged.
Here’s how this worked for one of our recent clients:
A property investor spotted a three-bedroom house at auction with a guide price of £180,000. They won the auction with a bid of £195,000 but needed to complete within four weeks. An auction bridging loan for £156,000 (80% of the purchase price) meant they could meet the deadline.
After some light renovations, they refinanced onto a buy-to-let mortgage three months later.
Bridging loans also work well for properties needing major works or renovation.
Most houses that need major work won’t qualify for a standard mortgage until the improvements are complete. A bridging loan can fund both the purchase and renovation costs, with the plan to switch to a mortgage once the work is done.
You might also consider a bridging loan when a quick purchase could help you secure a better price. Property sellers often prefer buyers who can move quickly, and being able to complete faster might help you negotiate a better deal.
This is a favoured strategy for property investors. Negotiating hard for a good deal knowing they can complete within just a few weeks.
When a Mortgage Makes More Sense
A mortgage is generally the better option when you’re planning for the long haul.
If you’re buying a home you plan to live in for years, or an investment property you want to rent out, a mortgage offers better value.
If you’re not in a rush and want to borrow over the long-term, a mortgage is a good choice.
Take buying your primary residence. You’ve found a house for £475,000, you’ve saved a 10% deposit, and you’re not in a rush to complete. A mortgage lets you spread the cost over many years, making it more affordable month to month. You can choose a competitive fixed rate, plan your budget around regular affordable payments and gradually build equity in your property.
Buy-to-let properties work well with mortgages too.
Let’s say you’re buying a rental property – your tenants’ rent will cover your monthly mortgage payments, while you benefit from any long-term increase in the property’s value. The steady, predictable nature of mortgage payments helps you manage your investment more effectively.
Moving from Bridge to a Mortgage
For many borrowers a bridge loan is transitional, temporary.
It allows them to quickly and simply borrow money against a property, this could be a residential property or a commercial one.
These situations could be needed to secure a great price, buy a run-down property, or to borrow without the formalities of a major lender.
Then, when the time is right, you can remortgage the property and pay off the bridging loan.
Common Misconceptions
Let’s clear up some common misunderstandings about bridging loans and mortgages – there’s quite a bit of confusion out there that might affect your decision.
Many people assume bridging loans always cost more than mortgages.
While bridging loans do have higher monthly rates, they’re designed to be flexible and repaid quickly. So if you’re using one for just a few months, the total cost might actually be lower than arrangement fees and early repayment charges on a mortgage.
There’s also a belief that bridging loans are only for property developers or wealthy investors.
In reality, they’re used by all sorts of people – from homeowners breaking property chains to small business owners buying commercial premises. Similarly, some think mortgages are just for residential properties, when they’re widely used for commercial buildings and investment properties too.
Another myth worth busting is that bridging loans are riskier than mortgages.
Both types of lending are secured against property, so the main risk with either is not being able to make repayments. The key difference is timing – bridging loans need repaying sooner, so you’ll need a solid plan for this.
Eligibility
Some borrowers worry they won’t qualify for either option if they’re self-employed or have a complex income. Actually, both bridging lenders and mortgage providers can be quite flexible – it’s more about finding the right lender for your situation.
Getting the Right Support
Working with a knowledgeable broker makes a big difference when choosing between a bridging loan and a mortgage.
Brokers know the market inside out and work with hundreds of lenders – many of whom don’t deal directly with borrowers.
While high street banks might offer mortgages, bridging loans often come from specialist lenders. A broker can tap into both markets, comparing options you might not find on your own.
They’ll also understand which lenders are most likely to accept your application based on your specific circumstances.
Your broker will look at your whole situation – not just the numbers.
They’ll factor in your timeline, property plans, and financial position to recommend the most suitable option. This can save you both time and money, helping you avoid application rejections or unsuitable products.
Conclusion
Choosing between a bridging loan and a mortgage really comes down to what you want from the situation.
Bridging loans work brilliantly for short-term funding and quick purchases, while mortgages offer stability for long-term property ownership.
Remember, it’s not always an either-or choice. Sometimes using a bridging loan first, then switching to a mortgage later makes perfect sense.
The key is matching the finance to your specific situation and plans.
If you’re still unsure which option would work best for you, speaking with a broker can help clarify your choices. They can walk you through your options, explain the costs involved, and help you find the right lender for your circumstances.
FAQ
Bridging loans can be arranged in as little as 5-7 days, while mortgages usually take 6-8 weeks to complete. The speed difference comes from simpler application requirements and faster property valuations.
Read more: How Quickly Can You Get a Bridging Loan?
While bridging loans have higher monthly rates, they might work out cheaper for very short periods due to lower arrangement fees and no early repayment charges. Mortgages are usually more cost-effective for longer-term borrowing.
Yes, bridging lenders focus more on your property and exit strategy than credit history. However, you’ll need a clear plan for repaying the loan.
Read more: Bad Credit Bridging Loans
Mortgages typically require 10-25% deposits, while bridging loans usually need 20-30%. Some bridging lenders offer up to 80% and even 100% LTV with additional security.
Read more: Do You Need a Deposit for a Bridging Loan?
Yes, bridging loans are popular for auction purchases as they can be arranged within the standard 28-day completion deadline that auctions require.
Read more: How to Finance an Auction Property
Yes, refinancing onto a mortgage is a common exit strategy for bridging loans. You’ll need to meet the mortgage lender’s criteria.
Yes, you can have both a bridging loan and a mortgage simultaneously.
This is quite common in several situations. You might use a bridging loan to buy a new property while still having a mortgage on your current home. Or you could use a bridging loan to fund renovations on a property that already has a mortgage.
The key is that the lenders need to know about each other – the bridging lender will want to know about any existing mortgage, and if you’re planning to get a mortgage later, you’ll need to tell that lender about the bridging loan.
Related reading: First, Second & Specialist Charges in Bridging Finance
Yes, both commercial mortgages and commercial bridging loans exist. The choice depends on your timeline and intended use of the property.
Related:
Yes, though mortgages might require longer trading history. Bridging loans often have more flexible criteria for self-employed applicants.
Read more:
Yes, bridging loans are commonly used for property development, especially for smaller projects lasting under 18 months.
Mortgages often have upper age limits at the end of the term. Bridging loans typically have more flexible age criteria.
Read more: Do UK Bridging Loans Have Age Limits?
Yes, bridging lenders focus more on your exit strategy than employment status. Your property and repayment plan are key.
With a non-status bridging loan you won’t even need to prove any income.
Read more: Bridging Loans for Pensioners and Retirees
For mortgages, you’ll need proof of regular income – this is a firm requirement as lenders must verify you can make the monthly payments.
Without income, a traditional mortgage won’t be an option.
However, bridging loans work differently. They focus less on your income and more on your property and exit strategy. If you own property or assets and can clearly show how you’ll repay the loan (perhaps through a property sale), many bridging lenders will consider your application.
In these situations, working with a broker who knows the bridging loan market can help you find suitable options.
Read more: Can You Get a Bridging Loan Without a Job?
