Have you ever found your next home but couldn’t buy it because your current property hadn’t sold yet? Or spotted an incredible auction property but didn’t have quick access to funds?
These situations can be incredibly stressful. You’ve found the right property at the right time, but your finances aren’t quite lined up.
That’s where short-term bridging loans come in.
They provide a fast funding solution when mortgages are too slow or unsuitable. For many property buyers, investors and businesses, they’re the difference between seizing an opportunity and missing out.
But bridging loans aren’t for everyone. They come with higher costs and need careful planning. With the right approach and understanding, they can be incredibly useful for solving specific financial challenges.
This guide explains short-term bridging loans – what they are, how they work, who can get them, and whether they might be right for your situation.
The Nuts and Bolts of Short-Term Bridging Loans
A short-term bridging loan is exactly what it sounds like – a loan that “bridges” a financial gap.
It’s a form of secured lending that gives you quick access to funds for a short period, usually between 3 and 24 months.
Bridging loans are secured against property or land, which means the lender has a legal claim on that asset if you can’t repay the loan. This security is what allows lenders to provide funds quickly and with more flexible criteria than mainstream lenders.
The core purpose of a bridging loan is to provide temporary finance until a more permanent solution becomes available. For example, you might use a bridging loan to buy a new home while waiting for your current property to sell, then repay the loan once the sale completes.
Interest is charged monthly, but in most cases you repay all of the interest when you pay back the original debt. This means there are no monthly repayments.
Types of Bridging Loans
The bridging loan market offers several different types of products to suit various needs:
Regulated vs. Unregulated Bridging Loans
Regulated bridging loans are overseen by the Financial Conduct Authority (FCA) and apply when you’re borrowing against your main residence.
They provide additional consumer protections and are limited to a maximum term of 12 months.
Unregulated bridging loans are used for business or investment purposes, such as buying a rental property or commercial premises. They aren’t subject to FCA rules and can sometimes extend to longer terms, up to 24 or even 36 months.
First Charge vs. Second Charge Bridging Loans
A first charge bridging loan means the bridging lender has first claim on the property if you can’t repay. These are used when there’s no existing mortgage on the property.
A second charge bridging loan is where there’s already a mortgage on the property.
The existing mortgage lender has first claim on the property, and the bridging lender is second in line. This higher risk for the lender usually means higher interest rates.
Read more: First, Second & Specialist Charges in Bridging Finance
Open vs. Closed Bridging Loans
Closed bridging loans have a fixed repayment date based on a known future event, like a property sale that’s already agreed because you have exchanged contracts.
Open bridging loans don’t have a fixed end date, though lenders still expect repayment within a certain timeframe, usually 12 months. They’re useful when you’re not entirely sure when your current property will sell, for example.
Read more: What is The Difference Between Open and Closed Bridging Loans?
Let’s talk bridging loans!
When to Use Short-Term Bridging Loans
Bridging loans are remarkably versatile.
While they’re most commonly associated with property purchases, they can solve various short-term funding challenges.
Breaking property chains is perhaps the most well-known use. UK property transactions often involve chains, where multiple buyers and sellers are dependent on each other’s transactions completing. If one link breaks, the whole chain can collapse.
A bridging loan allows you to buy your new home before selling your existing one, keeping the chain intact.
Auction purchases are another common scenario. When you buy at auction, you’re required to pay a 10% deposit immediately and complete the purchase within 28 days. Most standard mortgages simply can’t be arranged that quickly.
Property refurbishment projects often benefit from bridging finance. Many properties that need renovation work don’t qualify for a mortgage until the work is complete. A bridging loan lets you buy the property, fund the renovation, and then either sell it or refinance to a standard mortgage once it’s in good condition.
Buying unmortgageable properties is possible with bridging loans. Properties with structural issues, short leases, or non-standard construction might be rejected by mainstream lenders. Bridging loans are more flexible, focusing on the potential value after issues are resolved.
Business funding needs can also be met with bridging loans. Companies sometimes use them to seize time-sensitive opportunities, manage cash flow gaps, or fund expansion while waiting for longer-term finance.
Read more: What can a bridging loan be used for?
Property Auction Financing
Properties are sold via auctions because of the certainty of sale.
When you win a bid at auction, you’ll need to pay a 10% deposit immediately and complete the purchase within 28 days.
Standard mortgages rarely work for auction purchases because of these tight timeframes.
A bridging loan can be arranged quickly enough to meet auction deadlines.
The key is to have everything prepared before the auction. Many buyers get an agreement in principle from a bridging lender before bidding, so they know exactly how much they can borrow.
Read more: How to Finance an Auction Property
Property Renovation and Development
Short-term bridging loans are ideal for property renovation projects because they consider the potential value of a property, not just its current condition.
For lighter refurbishments – cosmetic updates like new kitchens, bathrooms, or decorating – a standard refurb bridging loan usually works well. For heavier renovation work involving structural changes, extensions, or conversions, some lenders offer specific heavy refurbishment bridging products.
The loan could cover up to 80% of the purchase price and 100% of the renovation costs, giving you the funds needed to transform the property. Once work is complete, you could either sell the property or refinance to a standard mortgage at the higher value.
Read more: Guide to Light and Heavy Refurbishment Bridging Loans
How Bridging Loans Actually Work
Bridging loans are structured differently from standard mortgages, with their own unique features designed for short-term borrowing.
Our bridging lenders offer loans from about £100,000 upward, with no formal upper limit for the right deal.
The amount you can borrow is primarily based on the property’s value, expressed as a loan-to-value (LTV) ratio. For residential properties, lenders generally offer up to 75-80% LTV, while commercial properties might be limited to 65-70%.
Unlike mortgages that focus on your income and affordability, bridging loans are more concerned with the property itself and your exit strategy.
The exit strategy, how you plan to repay the loan, is absolutely fundamental. Common exit strategies include selling a property, refinancing to a longer-term mortgage, or receiving funds from another source like an investment maturity.
Interest on bridging loans works differently and rates are quoted monthly instead of annually, and there are three main ways interest can be charged:
- Monthly payments – You pay the interest each month, similar to an interest-only mortgage.
- Rolled-up interest – The interest accumulates and is added to the loan balance, to be paid when you repay the loan.
- Retained interest – The lender calculates the total interest for the expected loan term upfront and adds it to your loan amount. This means you effectively borrow the interest as well as the principal.
For example, if you borrow £450,000 for a property purchase over 9 months with rolled-up interest, the interest would accumulate each month and be added to your balance. You’d then repay the original loan plus all the accrued interest when you sell the property or refinance.
The speed of arrangement is one of the biggest advantages. A bridging loan can sometimes be arranged in as little as 7-10 days for straightforward cases.
Costs: What You’ll Pay for a Bridging Loan
Bridging loans come with various costs beyond just the interest rate, and it’s important to understand the full picture.
Interest rates are quoted monthly, which can sometimes mask how they add up over a year. A monthly rate of 0.75% might sound small, but it equates to 9% annually – and potentially more when compounding is factored in.
Beyond interest, you’ll need to budget for:
Arrangement fees are typically up to 2% of the loan amount. On a £500,000 loan, that’s £10,000.
Valuation fees cover the cost of assessing the property’s value. These vary based on the property size and value but expect to pay at least several hundred pounds.
Legal fees cover both your solicitor and the lender’s solicitor. Bridging lenders require legal representation, and you’ll usually pay for both sets of legal fees.
Administration fees might be charged for processing the application and setting up the loan.
Exit fees are sometimes charged when you repay the loan.
For a £400,000 bridging loan over 6 months, you might pay:
- Interest: Varies by lender and your circumstances
- Arrangement fee: £8,000
- Valuation fee: £500-£1,000
- Legal fees: £1,500-£3,000
- Administration fee: £0-£500
- Possible exit fee: £0-£4,000
These costs can add up quickly, which is why bridging loans are best suited for specific short-term needs where their benefits outweigh the costs.
Read more: How Do Bridging Loan Interest Options Work?
Exit Strategies: Your Plan for Repayment
A solid exit strategy is possibly the most important aspect of a bridging loan.
It’s your plan for repaying the loan at the end of the term, and lenders will scrutinise it carefully before approving your application.
Common exit strategies include:
Property sale – You plan to sell a property and use the proceeds to repay the loan. Lenders will want to know if the property is already on the market, what interest you’ve had, and whether the expected sale price will comfortably cover the loan.
Refinancing – You plan to switch to a longer-term mortgage once circumstances change. This might be after completing renovations that make the property mortgageable, or after improving your financial situation.
Cash funds – Sometimes the exit strategy is based on known future income, such as an investment maturity, inheritance, or bonus payment.
The strength of your exit strategy directly impacts your chances of loan approval and potentially the interest rate offered. A property already under offer with a reliable buyer presents less risk than a property not yet on the market.
You should also have contingency plans.
What if your property takes longer to sell than expected? What if renovation costs increase? A good broker will help you present a strong main exit strategy and sensible backup plans to the lender.
Remember that bridging loans are secured against property, so if your exit strategy fails and you can’t repay the loan, the lender can repossess the property. This makes having a realistic, achievable exit strategy absolutely essential.
First-Time Buyer’s Guide to Bridging Finance
Learn how bridging finance works for first-time buyers. Our complete guide explains costs, requirements and application steps. Expert UK advice available.
read moreEligibility
While criteria vary between lenders, loans are generally available to:
- Individuals aged 18 or over (some lenders require borrowers to be 21+)
- UK residents (though some lenders also consider UK expats or foreign nationals buying UK property)
- Companies, LLPs, and partnerships
- Special Purpose Vehicles (SPV)
- Trusts (with some lenders)
Your credit situation may be assessed but is rarely the reason that an application fails.
Because the loan is secured against property, lenders are more concerned with the property value and your exit strategy than your credit history. This makes bridging loans accessible to people who might struggle to get conventional finance.
For example, self-employed people or those with irregular income might find bridging lenders more accommodating than mainstream mortgage providers. Similarly, older borrowers who face age restrictions with standard mortgages may find bridging lenders more flexible.
The property being used as security is perhaps the most important factor. Almost any type of UK property can be considered, including:
- Residential properties
- Commercial properties
- Mixed-use properties
- Land (with or without planning permission)
- Properties in poor condition
While bridging loans are accessible, they’re not right for everyone. They work best when there’s a clear purpose and a realistic exit strategy.
Expert Help with Your Bridging Loan
Finding your own way through the bridging loan market can be complex, especially if you’re not familiar with this type of finance.
A specialist broker can make the process much easier and potentially save you money.
Brokers offer several key benefits:
- Access to the whole market – They work with numerous lenders, including many that don’t deal directly with the public. This means more options and potentially better terms.
- Expert knowledge – Good brokers understand the intricacies of bridging finance and can match your specific needs to the most suitable products.
- Handling complex cases – If your situation is unusual or complicated, brokers know which lenders are most likely to consider it favourably.
- Negotiating power – Established relationships with lenders can help brokers secure better terms than you might get directly.
- Application support – They’ll help prepare your application, gather documentation, and present your case in the best light.
A knowledgeable broker can turn a stressful, confusing process into a straightforward one, while potentially saving you thousands of pounds.
Myths vs Reality
There are several myths about bridging loans that can prevent people from considering them as an option:
“Bridging loans are only for the wealthy” – While they’re often used for high-value properties, bridging loans are available for properties across the price spectrum, with loans starting from £100,000.
“You need perfect credit to get a bridging loan” – Lenders are more concerned with the property value and your exit strategy than your credit history. While serious credit issues won’t be ignored, they’re less problematic than with standard mortgages.
“Bridging loans are a last resort when all else fails” – Many property investors and developers use bridging loans strategically as part of their regular financing approach, not just as an emergency measure.
“They’re only for property purchases” – While property buying is a common use, bridging loans can fund renovations, business opportunities, auction purchases, and more.
“They’re always astronomically expensive” – Yes, they cost more than standard mortgages, but for short-term use in the right circumstances, the benefits generally outweigh the costs.
The reality is that bridging loans are a specialist finance product designed for specific situations. They’re not right for everyone or every scenario, but they can be extremely valuable in the right circumstances.
Consider a family wanting to move to a better school catchment area. With their current home unsold but a perfect property available in the right location, a bridging loan could help them secure the new home and ensure their children get the school places they want. The cost of the loan might be insignificant compared to the value of the educational opportunity.
Is a Bridging Loan Right for You?
Short-term bridging loans offer speed, flexibility, and solutions to problems that general mortgages can’t solve.
They’re particularly well-suited to:
- Breaking property chains
- Buying at auction
- Renovating properties
- Purchasing unmortgageable properties
- Solving time-sensitive funding needs
But they come with higher costs than traditional mortgages and require careful planning, especially regarding your exit strategy.
Before deciding on a bridging loan, ask yourself:
- Do I need funds quickly or for a short period?
- Do I have a clear plan for repaying the loan?
- Are the costs justified by the opportunity or solution the loan provides?
- Have I considered all alternatives?
If the answer to these questions points toward a bridging loan, the next step is to speak with a specialist broker who can guide you through the options and find the most suitable lender for your specific circumstances.
FAQ
Bridging loans can be arranged remarkably quickly – sometimes in as little as 7-10 days for straightforward cases. More complex situations might take 3-4 weeks. The speed depends on factors like property type, how quickly valuations can be arranged, and the efficiency of legal work. Working with an experienced broker can help streamline the process.
Read more: How Quickly Can You Get a Bridging Loan?
Our bridging lenders offer loans starting from £100,000, with no formal upper limit for the right deal.
The amount you can borrow is primarily based on the property’s value, with residential properties typically limited to 75%-80% LTV (Loan-to-Value) and commercial properties to 65-70% LTV. High-value properties can secure multi-million pound bridging loans.
A closed bridging loan has a fixed repayment date based on a known future event, such as a property sale that’s already agreed with a completion date. An open bridging loan doesn’t have a fixed end date, offering flexibility when you’re not entirely sure when your exit strategy (like selling your current property) will complete. Open loans typically cost more due to the additional uncertainty.
Read more: What is The Difference Between Open and Closed Bridging Loans?
A viable exit strategy is your plan for repaying the bridging loan at the end of the term.
Common exit strategies include selling a property (ideally with evidence of marketing or an offer), refinancing to a traditional mortgage (especially after renovations are complete), or using known future income like an investment maturity or inheritance. Lenders will scrutinise your exit strategy carefully, and its strength directly impacts your loan approval chances.
Some bridging loans are regulated by the Financial Conduct Authority (FCA), while others aren’t.
Regulated bridging loans apply when you’re borrowing against your main residence and are limited to a maximum term of 12 months with additional consumer protections. Unregulated bridging loans, used for business or investment purposes (like buy-to-let properties), aren’t subject to FCA rules and can extend to longer terms.
Most bridging lenders allow early repayment without penalties, though some might impose a minimum interest period. This means that even if you repay before this minimum period expires, you’ll still be charged interest for the full minimum term. Always check the early repayment terms before signing, as the ability to repay early can significantly reduce your overall costs if your exit strategy materializes sooner than expected.
Read more: Can You Pay a Bridging Loan Back Early?
Yes, many bridging lenders will consider applications from UK expats living abroad, and some will also lend to foreign nationals purchasing property in the UK.
The criteria might be stricter, and you might need a larger deposit or pay higher interest rates. Working with a specialist broker is particularly valuable in these cases, as they’ll know which lenders are open to expat or foreign national applications.
Yes, bridging loans are widely available for commercial property purchases in the UK. Whether you’re buying shops, offices, warehouses, or mixed-use properties, commercial bridging loans work similarly to residential ones but typically have slightly lower LTV ratios (around 65-70% compared to 70-75% for residential). They’re particularly useful for commercial properties that need renovation before they can generate income or qualify for commercial mortgages.
For minor to moderate property renovations, refurbishment loans are often suitable and can be simpler to arrange. For major structural work, conversions, or new builds, development finance might be more appropriate.
Development finance typically releases funds in stages as work progresses (requiring monitoring surveyor visits), while bridging loans often provide all funds upfront. Development finance can sometimes offer higher LTV ratios based on the gross development value, while bridging loans focus more on the current property value.
