Property purchases and business opportunities often require quick access to borrowing. Missing out on these due to financing delays can be frustrating and costly, potentially meaning the difference between securing your next home or watching it slip away.
Bridging loans offer a flexible, short-term financing solution that can be arranged quickly when traditional lenders might say no. These loans have gained popularity in the UK property market, serving as solutions for everything from breaking property chains to funding business growth.
Let’s explore what bridging loans are, how they work, and the various ways they can help you achieve your property and business goals.
What Makes Bridging Loans Different?
Bridging loans are short-term secured loans designed to cover a funding gap until a longer-term solution becomes available. They provide quick access to funds when you need to act fast, with loan terms usually ranging from 3 to 24 months.
Unlike standard mortgages that can take weeks or months to arrange, bridging loans can often be approved within days. This speed makes them perfect for time-sensitive situations, such as property auctions or preventing a house purchase from falling through.
The loans are secured against property or land and the property can be residential, commercial, or even undeveloped land. If you don’t repay the loan according to the agreed terms, the lender has the right to repossess the property to recover their funds.
Bridging loans fall into two categories:
- Regulated loans are used for property that you or a family member will live in and are overseen by the Financial Conduct Authority (FCA)
- Unregulated loans are for investment properties or business purposes and have fewer consumer protections
While bridging loans offer speed and flexibility, they do come with higher interest rates than traditional mortgages. This reflects the increased risk to lenders and the short-term nature of the finance. However, for many borrowers, the benefits of quick access to funds outweigh the higher costs.
Read more: Understanding Short-Term Bridging Loans
How Bridging Loans Work
When applying for a bridging loan, lenders focus mainly on the property’s value and your exit strategy, rather than your income or credit history. This makes bridging finance accessible to a wider range of borrowers, including those who might struggle with the normal mortgage requirements.
The amount you can borrow is determined by the loan-to-value (LTV) ratio – the percentage of the property’s value that the lender will provide. Most bridging lenders offer LTVs of 75-80%, though some may go up to 85% for strong applications. For a property valued at £500,000, a 75% LTV would allow you to borrow up to £375,000.
Bridging loans come in two main forms:
- First charge loans are the primary loan secured against a property, similar to a mortgage
- Second charge loans are taken out when there’s already an existing mortgage on the property, allowing you to access equity without disturbing your current mortgage
You’ll also encounter open and closed bridging loans. Closed loans have a fixed repayment date based on a known exit strategy, such as a property sale that’s already agreed. Open loans don’t have a fixed end date, offering more flexibility but usually with higher interest rates due to the increased uncertainty.
For interest payments, there are several options:
- Pay monthly (‘serviced interest’)
- Add it to the loan balance (‘rolled-up interest’)
- Deduct it from the loan amount upfront (‘retained interest’)
Many borrowers choose rolled-up interest to help with cash flow during the loan term.
Beyond interest, bridging loans involve several other costs, including arrangement fees (usually 2% of the loan amount), valuation fees, legal fees for both solicitors, and sometimes administration or exit fees.
The application process starts with an initial enquiry and agreement in principle, followed by a formal application, property valuation, legal work, and finally, completion. This process can be completed in as little as 7-10 days for straightforward cases.
Read more:
10 Common Uses for Bridging Loans
Bridging loans are remarkably flexible and can be used in various scenarios where quick access to funds is needed. Let’s explore ten common situations where these versatile loans can make all the difference:
Rescue a Collapsing Property Chain
Property chains occur when multiple property transactions depend on each other to complete. When someone in the chain pulls out or faces delays, everyone can be affected, potentially costing you your dream home.
Bridging loans can save the day by providing funds to purchase your new property before your existing one sells. This removes your dependency on the chain and gives you the freedom to proceed regardless of delays elsewhere.
A family in Kent found their perfect home but faced a buyer who suddenly couldn’t proceed with purchasing their current property. Rather than losing their new home, they used a bridging loan to complete the purchase, then repaid it when their existing property eventually sold.
This approach gives you breathing space to sell your current property without rushing or accepting below-market offers. It also puts you in a stronger negotiating position as a buyer since you’re effectively a cash purchaser.
Snap Up Auction Bargains
Property auctions offer opportunities to find bargains, but they come with strict payment deadlines. When you win a bid, you’ll need to pay a 10% cash deposit on the day and complete the purchase within 28 days – far too quick for most mortgages.
Bridging loans are ideal for auction purchases as they can be arranged quickly. You can often get an agreement in principle before the auction, giving you confidence in your maximum bid.
A property investor spotted a Victorian terraced house in Manchester with renovation potential. With a guide price of £180,000, he arranged a bridging loan in advance and successfully bid £195,000. The bridging loan allowed him to complete within the 28-day deadline, after which he renovated the property and refinanced onto a buy-to-let mortgage.
When using bridging finance for auctions, remember to factor in all costs, including the buyer’s premium, auction fees, and potential renovation costs.
Transform Unmortgageable Properties
Many properties with great potential aren’t mortgageable in their current condition due to structural problems, outdated facilities, or damage. Mortgage lenders may refuse to provide finance until these issues are resolved – creating a frustrating catch-22 situation.
Bridging loans solve this problem by providing funds to both purchase and renovate the property. Once the work is complete and the property meets lender requirements, you can refinance onto a standard mortgage or sell for a profit.
A couple in London used a bridging loan to purchase a run-down three-bedroom house for £420,000. They spent £65,000 on renovations, including a new kitchen, bathroom, rewiring, and central heating. After six months, the property was valued at £550,000, allowing them to refinance onto a conventional mortgage and repay the bridging loan.
This strategy works particularly well for property developers and investors who specialise in adding value through renovation, but it’s also useful for homeowners looking to create their ideal living space in a property that needs work.
Accelerate Buy-to-Let Portfolio Growth
The buy-to-let market moves quickly, and investors need to act fast to secure promising properties. Bridging loans allow investors to move swiftly and compete effectively, even in hot markets.
They’re especially useful when purchasing properties that need refurbishment before letting. By using bridging finance, investors can fund both the purchase and renovation costs, then refinance onto a buy-to-let mortgage once the property is ready for tenants.
Many lenders now offer “bridge-to-let” products, which combine a short-term bridging loan with a pre-approved buy-to-let mortgage for when the work is complete. This provides certainty and makes the refinancing process smoother.
A Landlord in Bristol used bridging finance to quickly purchase three flats in a converted Victorian building for £650,000. After spending £75,000 on renovations, she refinanced onto buy-to-let mortgages and achieved a rental yield of 7.5%, significantly higher than would have been possible without the improvements.
For landlords with existing portfolios, bridging loans can also quickly release equity for further purchases or renovations, allowing for faster portfolio expansion.
Secure Prime Commercial Locations
Commercial property transactions often involve more complexity and longer timeframes than residential purchases.
These loans work for various commercial properties, including offices, retail units, industrial buildings, and mixed-use developments. They’re particularly valuable when a business needs to move quickly to secure premises or when a property requires work before it’s suitable for commercial use.
A small business owner in Edinburgh used a bridging loan to secure a prime retail location when her lease unexpectedly ended and a perfect high street premises became available. The bridging loan allowed her to purchase the property and complete essential renovations before securing a commercial mortgage, preventing any business interruption.
Unlock Land Development Potential
Purchasing land with development potential can be difficult with traditional finance, especially without planning permission. Bridging loans fill this gap, allowing investors and developers to acquire land while working on planning applications.
These loans work for land with or without existing planning permission. Rates and terms are more favourable for land with permission, but many lenders will consider both scenarios.
A developer in the Home Counties identified a small plot with potential for four houses. Using a bridging loan, he purchased the land for £400,000 and submitted a planning application. When permission was granted six months later, the land value increased to £650,000, allowing him to refinance onto development finance to build the houses.
This approach, known as “planning gain,” can be highly profitable but carries risks if planning permission is refused. Your exit strategy needs to account for this possibility, perhaps by selling the land or finding alternative uses that don’t require planning permission.
Fund Business Growth Opportunities
Businesses sometimes face sudden cash flow challenges or growth opportunities that require quick access to funds.
Bridging loans can provide this capital, using either commercial or residential property as security.
Common business uses include:
- Covering tax liabilities, such as VAT or corporation tax
- Purchasing stock or equipment
- Funding seasonal cash flow gaps
- Acquiring another business
- Releasing working capital
While business bridging loans can be invaluable in the right circumstances, they should be used strategically, with a clear plan for repayment. They’re not suitable for propping up failing businesses but can help healthy businesses overcome temporary challenges or seize growth opportunities.
Buy Time When Facing Repossession
When facing property repossession, a bridging loan can be a last resort to gain time and take control of the situation. By paying off mortgage arrears or settling the mortgage entirely, you can stop repossession proceedings and sell the property on your own terms.
This approach works best when the property has sufficient equity and when you have a realistic exit strategy, such as selling the property at market value rather than the discounted price it might achieve at a forced sale.
While bridging finance can help in these situations, it should be considered carefully as it adds further debt. Professional advice is essential to ensure it’s the right approach for your circumstances.
Release Equity from Your Property Portfolio
Property investors with multiple properties often have significant wealth tied up in their assets, but accessing this equity through traditional remortgaging can be slow and complicated. Bridging loans offer a quick solution to release capital from your existing portfolio without disrupting long-term financing arrangements.
This approach is particularly useful when you need funds for time-sensitive opportunities such as securing a new investment property, funding business ventures, or completing renovations across multiple properties simultaneously.
Downsize on Your Own Schedule
Downsizing to a smaller property can bring many benefits, including releasing equity and reducing maintenance costs. However, coordinating the sale of your existing home with the purchase of a new one can be challenging.
A bridging loan will allow you to purchase your new property before selling your current one, giving you the flexibility to move at your own pace and avoid temporary accommodation.
A retired couple in Surrey wanted to move to a single-level bungalow in Dorset due to mobility issues. Using a bridging loan, they purchased their ideal £425,000 property while taking time to properly market their larger family home. This allowed them to move when it suited them and avoid the stress of a rushed sale.
This approach is particularly valuable for retirees or those with specific housing needs who may struggle to find suitable properties quickly. It provides peace of mind and control over the moving process, although the cost of the bridging loan needs to be factored into the overall downsizing calculations.
Is Bridging Finance the Right Move for You?
Deciding whether a bridging loan suits your needs requires careful consideration of various factors.
They’re not right for everyone, and it’s essential to weigh the benefits against the risks.
Bridging loans work best in scenarios where speed is essential, such as auction purchases or preventing property chain collapses. If you have the luxury of time, more cost-effective alternatives like mortgages might be preferable.
Your exit strategy is perhaps the most critical consideration.
Bridging loans are designed to be temporary, and you need a clear, realistic plan for repayment. Whether through property sale, refinancing, or another source of funds, your exit strategy should be robust and have contingency options.
The costs of bridging finance extend beyond the headline interest rate. You’ll need to budget for arrangement fees, valuation fees, legal costs, and potentially exit fees. These can add significantly to the overall cost of borrowing, so ensure you have a comprehensive understanding of all expenses involved.
The security for the loan, usually property, is at risk if you can’t repay according to the terms. This makes bridging finance unsuitable for speculative ventures with uncertain outcomes. Consider whether you can afford to lose the security property if your plans don’t work out as expected.
Why Specialist Brokers Make All the Difference
Researching the bridging loan market can be challenging with so many lenders offering different terms and criteria.
A specialist broker brings essential expertise that can transform your borrowing experience.
These brokers access the whole market, including specialist lenders who don’t deal directly with the public. This means you’re more likely to find a loan that perfectly matches your situation.
Brokers excel at presenting your case to lenders, understanding what they’re looking for, and highlighting your application’s strengths. Their negotiating power and lender relationships often secure better terms than you could achieve alone – whether that’s lower interest rates, reduced fees, or more flexible conditions.
During the application process, they manage all paperwork and communications between parties, reducing your administrative burden and preventing delays – essential in time-sensitive situations.
Next Steps
Short-term bridging loans provide flexible, short-term financing for numerous property and business needs—from breaking property chains to funding auction purchases and business growth.
While versatile, they carry higher costs and demand careful exit strategy planning.
If you’re considering this option, begin by defining your exact requirements: loan amount, duration, and repayment plan. Research current market rates and prepare necessary documentation. Speaking with a specialist broker is typically the most efficient next step for tailored advice and lender matching.
If you’re considering a bridging loan and would like personalised advice tailored to your situation, feel free to get in touch.
Related reading:
- Using Bridging Loans for Mixed-Use Properties
- Unlocking Potential: 7 Types of Land You Can Finance with Bridging Loans
- Can You Get a Bridging Loan Without a Mortgage?
- Do You Need a Deposit for a Bridging Loan?
- Residential Development Finance
- Do Property Developers Use Bridging Loans?
- How to Finance an Auction Property
FAQ
A bridging loan is a short-term secured loan designed to ‘bridge’ a funding gap until longer-term money becomes available. In the UK, these loans typically last from 3 to 24 months and are secured against property or land. They’re characterised by quick approval times, flexible lending criteria, and higher interest rates.
Read more: Understanding Short-Term Bridging Loans
Bridging loans can be arranged remarkably quickly. For straightforward cases with all documentation in order, funds can be released in as little as 7-10 days from initial application. More complex cases involving unusual properties or legal complications might take 3-4 weeks. Working with a specialist broker who knows which lenders can work to your timeline can significantly speed up the process.
Read more: How Quickly Can You Get a Bridging Loan?
While a good credit history helps, many bridging lenders will consider applications from borrowers with adverse credit history, including CCJs, defaults, or even bankruptcies that have been discharged. The property and exit strategy are the primary concerns.
Read more: Can you get a bridging loan with bad credit?
Most lenders go up to 75% LTV. For the right deals we have access to lenders who can go to 80-85% LTV.
Yes, bridging loans are ideal for auction purchases. When you win a bid at auction, you need to pay a 10% deposit immediately and complete within 28 days – far too quick for most mortgages. You can arrange an agreement in principle with a bridging lender before the auction, then formally apply once you’ve won the bid. This ensures you can meet the tight completion deadlines and avoid losing your deposit.
Read more: How to Finance an Auction Property
Absolutely. Bridging loans are frequently used for properties that need renovation and wouldn’t qualify for a normal mortgage due to their condition. You can borrow to both purchase and renovate the property, then either sell it for a profit or refinance onto a mortgage once the work is complete.
Read more: Can a Bridging Loan Be Used for Renovations?
A second charge bridging loan allows you to borrow against a property that already has a mortgage (first charge) in place.
The bridging loan takes a secondary position behind the existing mortgage. This option lets you access equity in your property without disturbing your current mortgage arrangements, which is useful if you have a good rate you don’t want to lose. The combined LTV of both the first and second charge usually can’t exceed 75-80% of the property value.
Read more:
Yes, bridging loans are widely available for commercial properties, including offices, retail units, industrial buildings, and mixed-use developments. They can be used to purchase commercial property quickly, refurbish premises, or release equity from existing commercial assets. Interest rates for commercial bridging loans are slightly higher than for residential properties due to the perceived additional risk.
Related: Financing Your Commercial to Residential Conversion
Yes, self-employed individuals can qualify for bridging loans. Unlike traditional mortgages that scrutinise income and require years of accounts, bridging lenders focus primarily on the property’s value and your exit strategy. This makes them particularly accessible to self-employed people, contractors, and business owners who might struggle with conventional lending criteria.
Read more: How Self-Employed Borrowers Can Access Bridging Finance
Yes, this is widely available.
Read more: Getting a Bridging Loan Through Your SPV
