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A bridging loan is a short-term secured loan used to “bridge” a gap in funding - for example, if you want to buy a house before selling your existing one or when buying at auction and you need funds quickly. Bridging loans in the UK are typically secured against property and are designed to be repaid within 12 months, often through a property sale or by remortgaging. This guide explains bridging loans in simple terms, including how they work, costs, risks and when they may be suitable.
KEY INFORMATION
Here are some examples of when you may consider using a bridging loan:
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For bridging loans, homeowner loans, bad credit mortgages and more speak to specialist lending brokers now.
Bridging loans work by providing a short-term loan secured against property, which is repaid once your exit strategy is completed.
In simple terms, bridging loans work as follows:
Here’s an example of how a bridging loan works if you own your property outright. Although you can also get a bridging loan if you have a mortgage on your property:
If you’re ready to apply, see our step-by-step guide below on how to get a bridging loan.
You can typically borrow between £50,000 and £10 million with a bridging loan. The amount depends on how much equity you have available. The maximum loan, including interest, is normally limited to 75% loan to value. The loan is then secured on the property or it can be across multiple properties to raise the required funds. Bridging loans, unlike a mortgage, are not directly linked to your income.
There are different types of bridging loans:
Because it is a secured loan, when you take out a bridging loan a charge will be placed against your property. If you own the property outright this will be a first charge loan – meaning the lender will be the first to be repaid when the property is sold.
If you have a mortgage or existing loan on the property, that will be the first charge loan and the bridging loan will be a second charge loan. With a second charge bridging loan you will need permission from the first charge lender before you can take out the bridging loan. These are typically more expensive than first charge bridging loans.
| Own your home outright | Own your home with a mortgage | |
|---|---|---|
| Can I get a first charge bridging loan? | Yes, if you meet the lender’s criteria. | No |
| Second charge bridging loans | You don’t need to take out a second charge loan as you can take out a first charge one, if you can meet the lender’s criteria. | Yes, if you meet the lender’s criteria. |
Just like with a mortgage, you can choose to pay fixed or variable rate interest with bridging loans. As you’d expect, with a fixed rate bridging loan you’ll pay a set interest rate for the duration of the term. While with a variable rate bridging loan, the rate you’ll pay may go up or down if the Bank of England raises or cuts interest rates.
| What happens to my payments if? | Fixed rate bridging loan | Variable rate bridging loan* |
|---|---|---|
| Interest rates go up | Repayments stay the same | Repayments go up |
| Interest rates go down | Repayments stay the same | Repayments go down |
With open bridging loans, there is no fixed repayment date and as such it can be repaid whenever your funds become available. But bear in mind, lenders usually expect you to clear the debt within one year. However in some cases they may offer longer repayment terms.
A closed bridging loan is a type of bridging loan with a fixed repayment date, usually backed by a confirmed exit strategy such as an agreed property sale. Because repayment is more certain, closed bridging loans often have lower interest rates than open bridging loans.
| Open bridging loans | Closed bridging loans | |
|---|---|---|
| When can I pay back my bridging loan? | No fixed repayment date so you repay when you wish. Lenders usually require you to repay within 1 year but some lenders offer longer repayment terms. | You’ll have a fixed repayment date. |
Make sure you balance up the pros and cons before you apply for a bridging loan.
Interest rates tend to be higher on bridging loans as you are paying for the privilege of borrowing a lot of money quickly. Because bridging loans tend to be short-term, interest is charged daily rather than annually.
There are three ways that the interest on a bridging loan is charged:
| Way interest is charged | How this works |
|---|---|
| Monthly | Similar to an interest-only mortgage, you’ll pay the interest payments each month and it is not added to the loan. |
| Rolled up | Interest payments are added to the loan and paid when the bridging loan is cleared. |
| Retained | You borrow the interest upfront for an agreed period and then when the loan is paid back, any unused interest is returned to you. |
Bridging loan interest rates in the UK vary, depending on the lender, loan-to-value, property type and your exit strategy.
To get the best bridging loan interest rate, make sure you shop around. And the easiest way to do this is by using a specialist bridging loan broker. The experienced team of brokers at Chartwell Funding will give you free advice when securing your bridging loan.
However, there’s another important benefit of using a bridging loan broker; that’s because unlike standard mortgages, bridging loans interest rates can be negotiated. So by using a good bridging loan broker, you may get a better rate.
For bridging loans, homeowner loans, bad credit mortgages and more speak to specialist lending brokers now.
Alongside the interest rate, there are other bridging loan fees you may have to pay. These include:
Here are two examples of how a bridging loan works in the UK.
Say you currently own a £400,000 property with an outstanding mortgage of £100,000. You want to downsize to a £250,000 property but your current house sale is delayed. You want to take out a bridging loan for £250,000 for 3 months so that you can go ahead with the purchase of your new house. You’ll then pay back the bridging loan when the sale of your current home completes. Here’s how much that could cost:
| Bridging Loan Borrowed | £250,000 |
|---|---|
| Monthly Interest Rate | 0.58% |
| Interest Amount | £5,781 (Assumes full term of 3-months, calculated daily) |
| Arrangement fee | £5,000 (Added to loan) |
| Valuation Fee (Inc. VAT) | £348 |
| Telegraphic Transfer Fee | £35 (Added to loan) |
| Administration Fee | £145 (Added to loan) |
| Estimated legal costs | £900 |
| Redemption Administration Fee | £40 |
| Total cost | £262,248 |
Say you currently own a £600,000 property outright and want to take out a £400,000 bridging loan for 12 months so that you can downsize to a £400,000 property before selling your current home. How much might that cost?
| Bridging Loan Borrowed | £400,000 |
|---|---|
| Monthly Interest Rate | 0.7% |
| Interest Amount | £35,623 (Assumes full term of 12-months, calculated daily) |
| Arrangement fee | £8,000 (Added to loan) |
| Valuation Fee (Inc. VAT) | £522 |
| Telegraphic Transfer Fee | £35 (Added to loan) |
| Administration Fee | £145 (Added to loan) |
| Estimated legal costs | £900 |
| Redemption Administration Fee | £40 |
| Total cost | £445,264 |
Use this bridging loan calculator to get a detailed estimate of interest, charges and other costs of your bridging finance and get a quote instantly. How much you can borrow with a bridging loan will depend on the value of your properties and your personal finances. The maximum loan, including any retained or rolled up interest is normally limited to 75% loan to value (this can be over multiple properties).
The bridging loan may also be limited depending on the condition of the property, your credit history, any essential works required at the property or the level of finance available to refinance.
This is particularly relevant when using bridging loans for house purchases, as you may temporarily own two properties.
If you use a bridging loan to buy a new property before selling your existing home, you will usually need to pay additional Stamp Duty Land Tax (SDLT).
This is because, at the point your purchase completes, you technically own two properties. In England and Northern Ireland this usually means paying the additional property surcharge on top of the standard SDLT rates.
If the new property is replacing your main residence, you can normally claim a refund of the additional SDLT once your previous home is sold. To qualify, the old property must have been your main home and it must be sold within 3 years of buying the new one, unless exceptional circumstances apply.
However, the higher rate must still be paid upfront when the purchase completes. This means you may need additional cash available in the short-term until the refund is claimed. Speak to your solicitor or conveyancer about how this affects the total funds needed to complete your purchase.
Here’s the process of how to apply for and arrange a bridging loan:
The bridging loan process starts by finding a bridging loan broker and making an enquiry. If you use Chartwell Funding you can submit an enquiry form online or speak to a specialist broker on 01454 809 300. They’ll run through why you want a bridging loan, how much you want to borrow and how you’ll repay it. Your exit plan may be selling a property or if you’re buying an unmortgageable property, your exit plan may be to renovate it so you can take out a traditional mortgage.
KEY INFORMATION
As there are unregulated products on offer, we advise that you use a specialist broker, such as Chartwell Funding, who can scour the market for you and advise you on all your bridging loan options.
Here are some of the factors you should consider when choosing a reliable bridging loan broker:
Once your bridging loan broker understands your needs, they’ll speak to lenders on your behalf. Unlike with standard mortgages, bridging loan interest rates can be negotiated – so by using a good bridging loan broker, you may get a better rate. Your bridging loan broker will then contact you to explain your options. Once you’ve chosen a lender, your broker will complete the application form with detailed information about the property and your financial situation.
The lender will assess your application against their bridging loan criteria they’ll arrange a property valuation too. While lending criteria varies, they’ll typically look at:
Once these checks have been done, providing the lender is happy they will provide a conditional offer, including the loan amount, interest rates, loan terms and any other relevant information.
Bridging loans require several legal steps and it’s important to use a solicitor or conveyancer experienced with dealing with bridging loans. If you speak to Chartwell Funding, they’ll explain how this process works in the initial call. Once legal checks are complete and all conditions are met, the lender will formally approve the loan.
The process of releasing the funds is called drawdown.
Bridging loans usually take around 5-21 days to be approved, although in some cases it can happen faster than this.
Factors that could impact approval times include:
Prior to the 2008 financial crisis, bridging loans were a more common lending product offered by the high street banks such as Nationwide, Halifax and Santander. At this time, bridging loans were used by people not wanting to lose out on their dream home. However, many stopped offering them after the credit crunch.
These days bridging loans tend to be offered by alternative lenders rather than the high street banks such as United Trust Bank, Precise mortgages, MT Finance or some regional building societies.
A bridging loan is specialist finance, and you should seek independent advice as they are considered a loan of last resort. You need to establish if more suitable alternatives are available and specialist brokers (such as Chartwell Funding) are experienced in helping to arrange these loans if and when required.
For bridging loans, homeowner loans, bad credit mortgages and more speak to specialist lending brokers now.
When you apply for a bridging loan you’ll need to provide:
You may need to supply additional documents depending on your circumstances but your bridging loan broker will explain this to you.
A bridging loan can be a good idea if you need fast, short-term finance and have a clear plan to repay it. But it carries risks and higher costs than standard mortgages.
There are a number of other options you may consider instead of taking out a bridging loan:
However, Chartwell Funding can advise you on your remortgage options as well as on bridging loans so they’ll explain the best options for you.
If you’re considering a bridging loan because you want to buy a new home but you’re struggling to sell your existing home, a Let to Buy mortgage may be an option. Let to Buy means you’ll have two mortgages: you’ll need a Let to Buy mortgage for your current property and take out a standard residential mortgage for the property you want to buy.
Another alternative is to take out a secured homeowner loan. However, as with bridging loans, your home is at risk if you don’t keep up the repayments.
If the amount you want to borrow on a bridging loan is relatively small, this may be a cheaper option than a bridging loan.
Get fee-free remortgage advice from our partners at L&C. Use the online remortgage finder or speak to an advisor today.
Yes, there are specialist lenders that offer bridging loans with bad credit, although you may need to pay higher rates. But if you do have bad credit, it’s a good idea to do everything you can to improve your credit score – find out how to do this in our guide on 11 Tips to improve your credit score for a mortgage.
Bridging loans have big advantages: for example, you can quickly borrow the money to keep your property transaction on track, you can borrow large amounts and repayment terms can be flexible. You can discuss whether it’s right for you with one of the specialist lending experts at our partners at Chartwell Funding. Bridging loans can be expensive so it’s a good idea to see if any alternatives, like remortgaging or Let to Buy mortgages might be a better option for you.
Yes. Bridging loans are typically more expensive than a traditional mortgage. However, they offer flexibility and may mean you can keep a property purchase on track. Find out more about costs with this Bridging loan calculator.
This depends on how interest is charged. If it’s charged monthly, it’s similar to an interest-only mortgage where you pay the interest payments each month and it is not added to the loan. But if the interest is rolled up, it will be added to the loan and repaid when you repay the loan. Alternatively the interest may be ‘retained’, this means you borrow the interest upfront for an agreed period of time. When the loan is repaid, any unused interest is returned to you.
Yes. It is possible to use a bridging loan if you’re buying a Buy to Let property.
Yes, bridging loans can be expensive because you pay for the convenience of fast, flexible finance. However, bridging loan interest rates can be negotiated so you may get a cheaper rate by using a good bridging loan broker.
Bridging can be a good idea if you need to borrow money quickly and flexibly to keep your property transaction on track. But bridging loans are secured against property and you’ll typically pay higher rates and fees. Find out more about costs with our Bridging loan calculator.
Getting a mortgage on an auction property is possible but you’ll need to act quickly. You’ll only have 28 days to get the money to complete your purchase if you’re buying a house at a traditional auction. You’ll have more time if you’re buying via the ‘modern method of auction’. If there is a delay in getting your mortgage, you can take out a bridging loan to ‘bridge the gap’ in funding. A bridging loan can also help you buy a house at auction that isn’t quite habitable so deemed un-mortgageable.
Yes, bridging loans are commonly used for house purchases, particularly when there is a gap between buying a new property and selling your existing one. When using bridging loans for house purchases, they can help you move quickly, avoid chain breaks, or secure a property before your sale completes. However, you’ll need a clear exit strategy, such as selling your current home or remortgaging.
When used for a house purchase, a bridging loan allows you to buy a new property before selling your current one. The loan is secured against your property and is repaid once your existing home is sold or you switch to a mortgage.
A closed bridging loan is a type of bridging loan with a fixed repayment date, usually backed by a confirmed exit strategy such as an agreed property sale. Because repayment is more certain, closed bridging loans are often cheaper than open bridging loans, which don’t have a fixed end date.
Bridging loans in the UK are short-term loans, typically secured against property, designed to provide fast access to funds. They are commonly used when there is a gap between buying and selling a property. The loan is repaid once your exit strategy is completed – usually through selling your home or remortgaging.
There is no real difference between a bridge loan and a bridging loan – they refer to the same type of short-term property finance. “Bridge loan” is the term more commonly used in the US, while “bridging loan” is more commonly used in the UK. Both describe a loan designed to “bridge” a temporary gap in funding.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
