What is a bridging loan?

A bridging loan is a short-term secured loan designed to 'bridge' a gap in your finances — typically while you're waiting for a property to sell or for longer-term finance like a mortgage to complete. They're usually for 1–18 months and are secured against property. Bridging loans are much more expensive than mortgages (typically 0.4–1.5% per month) but can be arranged much faster — sometimes within days. They're commonly used for property chain breaks, auction purchases, renovation projects, and land purchases.

How much does a bridging loan cost?

Bridging loans charge monthly interest rates of 0.4%–1.5% (equivalent to roughly 5–18% per year). On top of the interest, you'll typically pay: an arrangement fee of 1–2% of the loan, a valuation fee (£300–£1,500), legal fees (both yours and the lender's, typically £1,500–£3,000 total), an exit fee (0–1% of the loan), and potentially a broker fee. On a £200,000 bridging loan at 0.7% per month for 6 months, the interest alone would be £8,400.

How quickly can you get a bridging loan?

Bridging loans can often be arranged within 3–14 days, which is much faster than a standard mortgage (which can take 4–8 weeks). Some lenders can complete in as little as 48 hours for straightforward cases. This speed is one of the main advantages — it's why bridging loans are popular for auction purchases (where you must complete within 28 days) and for preventing property chain collapses.

What happens if I can't repay a bridging loan?

If you can't repay a bridging loan on time, the lender can charge default interest (often significantly higher than the standard rate) and ultimately repossess the property securing the loan. This is a serious risk. Before taking a bridging loan, you need a clear and realistic exit strategy — usually either the sale of a property or the completion of a longer-term mortgage. Lenders assess your exit strategy before approving the loan, but the risk remains yours.

Bridging Loans Explained — Costs, Risks & When They Make Sense | PocketWise

Bridging loans are short-term, high-cost finance often used in property transactions. They can be invaluable in the right situation — but expensive and risky if misused.

How Bridging Loans Work

Feature	Detail
What it is	A short-term loan secured against property
Typical term	1–18 months
Loan size	Usually £25,000–£25 million+
Speed	Can complete in 3–14 days
Interest rate	0.4–1.5% per month
Secured against	Property — residential or commercial
Maximum LTV	Usually up to 75% (some up to 80%)

When Bridging Loans Are Used

Scenario	How a bridging loan helps
Buying before selling	Buy new home before your current one sells
Property chain break	Your buyer pulls out — bridge the gap while finding a new buyer
Auction purchase	Must complete in 28 days — too fast for a mortgage
Renovation project	Finance a property that’s unmortgageable in its current state, then remortgage after renovation
Land purchase	Buy land for development before planning permission is confirmed
Business cash flow	Short-term finance against commercial property
Probate property	Buy an inherited property from the estate before it’s fully settled
Conversion projects	Convert commercial to residential, then remortgage

Types of Bridging Loan

Open vs Closed

Type	Detail
Closed bridging loan	Has a fixed repayment date (e.g. “repay within 6 months”). Cheaper because the exit strategy is confirmed (e.g. exchange of contracts on property sale)
Open bridging loan	No fixed repayment date (but a maximum term, usually 12 months). More expensive and riskier

First Charge vs Second Charge

Type	Detail
First charge	The bridging loan is the primary loan against the property (no existing mortgage) — lower interest rates
Second charge	There’s already a mortgage on the property, and the bridge sits behind it — higher rates, the existing mortgage lender must agree

Costs Breakdown

Cost	Typical range	On a £200,000 loan
Monthly interest	0.4–1.5% per month	£800–£3,000/month
Arrangement fee	1–2% of loan	£2,000–£4,000
Valuation fee	£300–£1,500	£500–£1,000
Legal fees (your solicitor)	£750–£2,000	~£1,000
Lender’s legal fees	£750–£1,500	~£1,000
Exit fee	0–1%	£0–£2,000
Broker fee	0.5–1% (if using a broker)	£1,000–£2,000

Total Cost Example

Element	Amount
Loan amount	£200,000
Interest rate	0.7% per month
Term	6 months
Interest (0.7% × £200,000 × 6)	£8,400
Arrangement fee (2%)	£4,000
Valuation	£800
Legal fees (both sides)	£2,000
Exit fee (1%)	£2,000
Total cost of borrowing	£17,200

This is equivalent to paying 8.6% of the loan over 6 months — much more expensive than a mortgage.

How Interest Is Charged

Method	How it works
Monthly (serviced)	You pay interest each month out of pocket. Cheaper overall but requires cash flow
Rolled up	Interest is added to the loan balance and paid at the end. No monthly payments — but the total is higher
Retained	Interest for the full term is deducted from the loan upfront. You get less cash but have no monthly payments

Example: £200,000 at 0.7%/month for 6 months

Method	Monthly payment	Total interest	Cash received day one
Serviced	£1,400/month	£8,400	£200,000
Rolled up	£0/month	~£8,600 (compound)	£200,000
Retained	£0/month	£8,400 (deducted upfront)	£191,600

Exit Strategies

Your exit strategy is how you’ll repay the bridging loan. Lenders require a clear exit before they’ll lend:

Exit strategy	Detail
Sale of property	The most common exit — sell the property securing the loan or another property
Remortgage	Refinance onto a standard mortgage once the property is mortgage-ready
Refinance with development finance	Move to a longer-term development loan
Cash from another source	Inheritance, business funds, settlement payment

Bridging Loan vs Other Finance

Feature	Bridging loan	Mortgage	Personal loan
Speed	3–14 days	4–8 weeks	1–7 days
Term	1–18 months	25–35 years	1–7 years
Interest rate	0.4–1.5%/month	4–6%/year	5–15%/year
Secured against	Property	Property	Unsecured
Maximum amount	£25m+	£2m+ (standard)	£25,000–£50,000
Best for	Short-term property finance	Long-term home purchase	Small unsecured borrowing

Risks

Risk	Detail
Property doesn’t sell in time	You may face default interest or extension fees
Costs escalate	Every extra month adds more interest
Property repossession	If you can’t repay, the lender takes the property
Mortgage not approved	If your exit strategy was to remortgage and the mortgage is declined
Property value drops	You could owe more than the property is worth
Hidden fees	Always read the full terms — check for exit fees, default rates, and minimum terms

How to Apply

Step	Action
1	Define your exit strategy clearly
2	Use a bridging loan broker (recommended — they know the market)
3	Get a Decision in Principle (usually same day)
4	Provide documents: ID, proof of income, property details, exit strategy evidence
5	Property valuation arranged by the lender
6	Legal work completed (can be fast-tracked)
7	Funds released — usually within 7–14 days of application

Useful Links

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Your home may be repossessed if you do not keep up repayments on your mortgage. PocketWise provides information and guidance — we do not offer financial advice. Seek independent mortgage advice before making decisions about borrowing.

Bridging Loans Explained — Costs, Risks & When They Make Sense

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