What is a bridging loan?
A bridging loan is a short-term secured loan that covers a gap in your finances until longer-term money arrives. People usually reach for one when a property purchase has to go through quickly and there is no time to arrange a traditional mortgage, or when they need funds a mainstream lender will not touch, such as buying an uninhabitable property to renovate. Buy-to-let investors also use them to move fast when an opportunity comes up.
The loan is secured against property, which could be the one you are buying, a property you already own, or both together. Lenders arrange it far quicker than a standard mortgage, sometimes inside a few days, and you can put it towards a purchase, a refinance, renovation work or a development project.
A typical term runs between one and 18 months, though some lenders will stretch to 24 months. When the term ends you repay the whole loan at once, usually by selling a property, refinancing onto a standard mortgage, or drawing on other funds.
How much does a bridging loan cost?
Bridging rates are quoted by the month, not the year, and usually land somewhere between 0.4% and 1.5% per month. Over a year that works out at roughly 5% to 18%, well above what you would pay on a standard mortgage. Where you sit in that range depends on your loan-to-value (the size of the loan against the property’s value), the type of property, how solid your exit strategy is, and which lender you use.
Interest is not the only cost. On top of it you can expect an arrangement fee of around 1% to 2% of the loan, valuation fees, legal fees covering both your solicitor and the lender’s, and sometimes an exit fee as well. These extras stack up fast, so build them into your sums from the outset.
Most bridging loans use rolled-up interest, where each month’s interest is added to the balance rather than paid separately. At the end you settle the full amount, the loan plus the interest that has built up. If you would rather keep the balance down, some lenders let you service the interest monthly instead.
What is an exit strategy and why does it matter?
Every bridging loan application hinges on a clear exit strategy, which is your realistic plan for repaying the loan in full when the term ends. The lender has to believe that plan will work. If it does not and you cannot repay, they may have to repossess and sell the property the loan is secured against.
A few exit routes come up again and again: selling a property you already own, refinancing onto a standard mortgage once a renovation is finished and the place is mortgageable, money arriving from elsewhere such as an inheritance or a business sale, or selling the very property the bridging loan helped you buy. Whichever route you take, it needs to be realistic and properly thought through, whether the end point is a buy-to-let mortgage or a standard residential deal.
When is a bridging loan the right choice?
A bridging loan earns its keep when speed rules everything and a standard mortgage simply cannot be arranged in time. The same goes when you are buying somewhere that is not currently mortgageable, say a derelict building, when you want to secure a new home before your old one has sold, or when you have bought at auction and the clock is set at 28 days.
They are the wrong tool as long-term finance, and a poor fit for anyone without a believable exit strategy or for a case where a standard mortgage would do the job if you could just wait a little longer. Bridging costs too much to justify unless the speed or flexibility genuinely pays for that premium.
How Clearview can help with bridging finance
Bridging is a specialist corner of the market, and it pays to have an experienced broker alongside you. At Clearview Mortgage Solutions we work with a broad range of bridging lenders and can often put finance in place within days when the clock is against you.
We look at your situation, sanity-check that a bridging loan really is the right answer, negotiate competitive terms, and pressure-test your exit strategy until we are confident it holds up. Contact us for a free, no-obligation chat.