Bridging loans

What is a bridging loan?

A bridging loan is a short-term borrowing solution secured against your property. It’s designed to provide fast access to funds when there’s an urgent financial need, often while you’re waiting for longer-term finance to be arranged.

It serves as a temporary solution to help “bridge the gap” between two financial events. These loans typically last between 12 and 24 months and are usually repaid in a single lump sum.

Because bridging loans are short-term and higher-risk for lenders, they tend to carry higher interest rates and fees. That’s why it’s essential to have a clear and realistic repayment plan in place from the outset.

How do bridging loans work?

These loans are designed to help with short-term gaps in your finances. You borrow a sum secured against a property, with the understanding that it will be repaid in full at the end of the term, including interest and any fees.

This repayment plan, often referred to as an exit strategy, is critical. Most lenders won’t approve your loan without a clear and viable plan for how it will be repaid. This could be selling or remortgaging your property.

Unlike traditional loans, interest is typically calculated monthly rather than annually. Therefore, the longer the loan is held, the more expensive it becomes. Depending on the arrangement, interest may be paid monthly or rolled up and paid in full at the end.

Due to this, bridging loans are most effective when you know exactly how and when the loan will be repaid.

What can bridging loans be used for?

Bridging loans are highly versatile and can be used for a wide range of legal purposes, such as:

• Buying a new property before selling your current one (breaking a property chain)
• Funding refurbishments or property renovations
• Purchasing property at auction
• Buying properties that are currently unmortgageable
• Covering short-term cash flow gaps
• Business-related costs or urgent tax bills
  

As long as the loan is secured against a suitable property and the lender is satisfied with your exit strategy, the funds can be used flexibly.

How much can I borrow with a bridging loan?

The amount you can borrow will vary based on your personal financial circumstances, the value and type of property you’re offering as security, and your planned exit strategy. Lenders typically offer loans starting from £10,000, with upper limits reaching into the millions.

Because bridging loans are designed to be short-term, lenders place a strong emphasis on your ability to repay the loan within the agreed timeframe, so the amount offered will always reflect what’s realistically manageable within your specific situation.

What are the benefits of bridging loans?

✅ Fast access to funds
Bridging loans are known for speed. When time is critical, such as buying at auction or preventing a collapsing property chain, they can be arranged much faster than a traditional mortgage.

✅ Flexible usage
Since the loan is secured against your property, lenders are often more flexible with how the funds can be used, including scenarios that wouldn’t be accepted under standard lending criteria (e.g. buying an uninhabitable property).

What are the risks of bridging loans?

As with any form of borrowing, it’s important to understand the risks involved.

⚠️ Risk to your property
Bridging loans are secured against your property. If you fail to repay the loan on time, your property could be repossessed. That’s why it’s crucial to only borrow what you can afford and ensure you have a clear, realistic exit strategy in place.

⚠️ Higher costs
Usually these loans come with higher interest rates and fees compared to standard loans or mortgages. Because interest is calculated monthly, any delays can significantly increase the overall cost.

How do I apply for a bridging loan?

If you think a bridging loan might be right for you, or you’re not sure what your options are, get in touch for a no-obligation conversation. We’ll take the time to understand your circumstances and goals, then refer you to a trusted third-party who may be able to help. They’ll assess your needs and explore suitable solutions from a panel of lenders, helping you make an informed decision.

PLEASE NOTE: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

SOME FORMS OF BRIDGING LOAN ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.