Bridging Loans: What They Are & How To Get One

If you’re looking for information about bridging finance in the UK, you’ve come to the right place.

This article outlines the key details you need to know about bridging loans, including interest rates, eligibility criteria, and how to get one. In our FAQ section, we answer the questions we hear most often about this type of lending.

This is our main guide. For all our content on this topic, which may include an article about your specific circumstances, visit our dedicated bridging loans page.

What is a bridging loan?

Bridging loans are short-term, interest-only loans designed to either “bridge” the gap between an incoming debt and a mainline of credit becoming available, or to provide borrowers with the capital needed to fund a project when timing is critical.

Bridging finance is commonly used for property development projects, commercial investments (such as financing hotels or supporting business expansion), and purchasing properties at auction, where quick access to funding is essential.

While interest rates for bridging loans are typically higher than other financial products, they are often quicker to arrange than mortgages or secured loans, with terms that can be more flexible.

To be approved for a bridging loan, you’ll need to demonstrate a clear and viable exit strategy. This is essentially a plan showing how the loan will be repaid within the agreed timeframe.

For example, if you’re planning to purchase a property at auction, renovate it, and then sell it for a profit, you would outline these plans to the lender. Once your eligibility is confirmed, the lender can release the funds, enabling you to complete the purchase. After the renovation, the sale proceeds can then be used to repay the loan.

How this form of borrowing works

As we’ve touched on, bridging loans are offered on an interest-only basis, which means you don’t have to make any capital repayments until the end of the term, at relatively high rates, usually secured against a property or other assets as a first or second charge. The borrower’s exit strategy settles the debt.

You aren’t usually required to make monthly repayments. Where land or property is involved, the exit strategy is usually a sale or a remortgage, and the lender will want to see evidence that your exit plans are achievable beforehand.

How long will it take to arrange?

In straightforward cases, a conditional offer, subject to a valuation, can be on the table within days.

Bridging finance is much quicker to arrange than a residential mortgage because the lending decision usually hinges on the strength of the exit strategy, i.e. how you plan to pay the loan back at the end of the term.

How to get a bridging loan

Your first recommended step is to speak with a broker who specialises in arranging bridging loans. If you make an enquiry with us, our free broker-matching service will match you up with the right advisor. 

Your bridging loan broker will then be able to help with the following:

• Preparing your exit strategy: This would usually be the sale of the property or a remortgage. If you’re planning to refinance, it can help if you have an agreement in principle in place and the paperwork to back this up. If you’re selling the property, having proof of an offer on the table will strengthen your application.
• Download and optimise your credit reports: Once you’ve downloaded your credit reports, your broker will help to identify any inaccurate or outdated information that could slow down the process.
• Finding the right lender and submitting your application: Your broker will be able to quickly identify lenders who specialise in arranging bridging loans. Saving you time and, potentially, some money. They’ll also be able to help prepare your application, along with all the necessary documentary evidence required for this type of loan.  

How much will a bridging finance broker cost?

It depends on the complexity of the application, but typically, bridging loan brokers charge a percentage of the amount borrowed, usually between 0.5% and 2%. Some brokers may charge a flat fee (anywhere between £500 and £1,500). 

Depending on the broker you choose, the fee is usually paid once the loan has been completed. A broker could ask for part of the fee to be paid once a conditional offer has been received and a final payment once the loan has been completed.  

Some brokers may not charge a fee at all and simply take a procuration fee (usually up to 0.5%) directly from the mortgage lender upon completion. Read more about the costs and fees associated with bridging finance.

Are bridging loans a good idea?

This depends on your circumstances. Bridging finance can offer a lifeline to property developers, landlords, businesses, and house hunters in situations where timing is of the essence and other financial products, such as residential mortgages, are not an option.

When they can be useful

The following examples should give you an idea of why people typically use bridging finance…

• You’re buying property at an auction and need funds quickly. Winning bidders at property auctions usually need to exchange contracts, pay the deposit on the day, and then pay the full amount to secure the purchase within 28 days. A bridging loan could help you raise the necessary amount, but arranging a mortgage would take too long. In this scenario, the exit strategy could be a sale or a remortgage.
• You’ve been declined for a mortgage because you have bad credit or no income, but know that your cashflow/credit problems will be resolved in the near future. A bridging loan could allow you to secure the property you’ve got your eye on before a rival buyer makes an offer. The exit strategy would usually be switching to a mortgage once you’re eligible.
• You’re hoping to renovate a dilapidated property but cannot obtain a mortgage for it because a mortgage provider has dubbed it uninhabitable. Some bridging lenders are flexible enough to grant you funds to carry out the work needed to bring it back into a mortgageable state. In this case, the exit strategy could be a sale or a remortgage.
• You want to renovate a property and borrow against its increased value, but have been turned down for a secured loan. Bridge finance can provide funds to revamp the property, and the exit strategy would be a remortgage based on the new value.

Technically speaking, bridging finance can be used in many other scenarios by any business or individual, providing a viable exit strategy. For bridging loan advice from the whole-of-market experts we work with, get in touch today.

Which lenders offer bridging loans?

Bridging loans are available from a range of different lenders. Only a minority of mainstream banks and building societies will consider offering them, but there is a vast market of specialist bridging finance providers.

Some of the market leaders in this sector include…

• Masthaven
• Precise Mortgages
• Oblix Capital
• Shawbrook
• Greenfield Capital
• Lloyds Bank

One thing to keep in mind about bridging loan lenders is that approaching one directly is not recommended. Without professional advice, you’re unlikely to find the cheapest bridging finance deal on the market or a product that fits all of your requirements.

The best way to ensure you secure a good deal and avoid any pitfalls is to apply through a mortgage advisor or a specialist bridging finance broker. The ones we work with are whole-of-market and are best positioned to connect you with the lenders offering the best bridging loans with the most favourable rates for somebody in your shoes.

Most bridging lenders, especially unregulated ones, are more flexible than mortgage lenders, but whether your application is successful will likely come down to the strength of the exit strategy. The more water-tight your plans, the more likely you are to get a loan, but your broker can advise you on which lender is most likely to look favourably on your exit plans.

What interest rates to expect

Take a look at our rates table below to get an idea of the monthly interest rates currently available for bridging loans.

Please note that the rates above, for example, were accurate at the time of writing but are subject to change at the lender’s discretion.

Eligibility criteria

The eligibility criteria for bridging loans are usually flexible, and most applications are assessed case by case. That said, bridging finance lenders tend to reserve their best rates for customers with the following…

A strong exit strategy

Most people won’t qualify for a bridging loan without an exit strategy. The exit strategy is vitally important in any bridging loan deal, and the stronger yours is, the more likely you are to get the best rates.

Most exit strategies involve either a sale or a remortgage, and the lender will want you to clearly evidence that your plans are achievable.

It helps if you have an offer on the table (for a property sale) or a remortgage agreement in principle in place.

For development projects, the lender will be keen to see that you have the means to complete the proposed work, exploring the possibility of delays or setbacks, and that the project will raise the required amount of capital at the end of the loan term.

A good security property

This is directly linked to the exit strategy. If your exit strategy is a sale, it will always help if you have a good and desirable security property that is guaranteed to change hands for the desired amount.

The lender will consider factors such as location, build type, and other variables to determine whether there are any variables that might deter buyers, such as non-standard construction or leaseholds.

Clean credit

Although most UK lenders have bridging loan criteria that are flexible enough to cater for bad credit customers (as long as their adverse credit doesn’t put the exit strategy at risk), having clean credit will help you get the best rates at some bridging finance providers.

Bad credit can be an issue if your exit strategy is a remortgage, and mortgage underwriters might need to be reassured that there’s no possibility of further adverse credit building up during the term.

Experience in property

Like bad credit, a lack of experience in property isn’t a deal-breaker for anyone seeking a bridging loan, as some lenders are more than happy to deal with first-timers.

However, experience is always a bonus as proof of a strong track record in the industry will help you convince lenders that you can achieve your plans. They may want to see evidence of past projects as proof, and if you can provide it, you might land a more favourable deal.

A healthy deposit

While most bridging loans are offered with a 70-75% loan-to-value ratio (unless the deal is classed as high risk), those in a position to put down a higher deposit often end up with superior rates.

As with mortgages, the best rates kick in at around 40%.

Deposit requirements

Most bridging loans taken out for property purposes are offered with a loan-to-value (LTV) ratio of 70 to 75%, including the rolled-up/retained interest (the gross loan amount), so you will need a deposit of at least 30% to 35% of the property’s value.

Bridging lenders, though, can be flexible. If you have equity in another property or asset, they may be willing to use this.

LTV is usually the same for commercial and residential property if the exit strategy is secure and the deal is lower risk, but for higher-risk deals, the ratio can drop to 60% or even 50%.

What is considered high risk will vary from lender to lender. Some place LTV caps on certain commercial properties, such as shops and petrol stations.

Can you get approved with no deposit?

It is possible to get a bridge loan with a high LTV (up to 100%), but this usually means putting up extra assets/properties as security. Most lenders are happy for borrowers to put up multiple securities, but this comes with the risk of multiple repossessions if you’re unable to pay up at the end of the term.

You may also have to pay valuation fees for each asset/property.

The application process

Getting a bridging loan isn’t radically different to applying for a mortgage.

The application process usually involves the following steps…

1. The borrower makes an initial enquiry, and the bridging finance broker carries out a fact-find to establish their circumstances and financial situation.
2. The borrower is asked to provide evidence of their exit strategy, and the broker assesses its viability.
3. The broker sources bridging lenders in search of an agreement in principle (an initial approval before application). Though many bridging lenders skip this stage and go straight to full application.
4. After approval by an underwriter, the lender will issue a conditional offer. Unlike a mortgage, this offer is not binding and is subject to a full valuation and everything going smoothly with the bridging loan solicitors.
5. At this stage, the application is no different to a mortgage; it’s over to the solicitors to carry out their legal checks and conveyancing.
6. Completion and release of funds can happen very quickly, so long as the solicitor is good—it generally helps to use one with experience in bridging finance!

Regulated vs. unregulated loans

With bridging finance, there’s an important distinction to make between regulated and unregulated agreements.

Regulated bridging is aimed at anyone who needs the funds for a residential property they already live in or are planning to live in. They are overseen by the Financial Conduct Authority (FCA), giving the borrower protection against bad advice and mis-selling amongst other things.

Unregulated bridging finance is not bound by the same rules and regulations, which means lenders have more freedom around who they lend to and on what terms.

Are unregulated bridging loans safe?

No form of borrowing is completely risk-free, but unregulated bridging loans aren’t as dodgy as the name suggests. This is simply the term for commercial bridging finance, which needs to be bespoke, flexible, and tailored to the borrower.

For example, if you are investing in a buy-to-let property, an unregulated lender would allow you to borrow against potential rental income rather than your personal income.

Most bridging finance brokers are unregulated, as they lack the necessary clearance to operate in a regulated environment. Still, they can offer you bespoke bridging finance advice from a commercial standpoint.

Open and closed agreements

Another distinction we need to make is between two different types of bridging loans: open and closed.

Open bridging loans are somewhat more flexible than closed ones as there is no clear date by which the bridge loan has to be repaid. An exit strategy must be evidenced as usual, and there will be a cut-off point, but it will be within a specific timeframe rather than a defined date.

Closed bridging loans have clear settlement dates, agreed in advance. You will only be offered one of these deals if the lender knows exactly when you’ll be able to pay the money back.

For example, if the exit strategy is a sale with an offer already on the table, closed bridging loans generally have lower interest rates but are harder to come by.

How interest is charged

Relative to other forms of borrowing, interest rates can be higher, so it’s important to clarify how the lender will charge interest to give you an idea of the overall cost. Interest on bridging finance is charged in one of three ways: rolled up, monthly or retained.

Rolled up vs monthly

With rolled-up interest, the borrower does not make any monthly payments. The interest is compounded monthly and payable at the end of the term. This is suited to customers who cannot make monthly payments because they are short of capital until their exit strategy has paid out.

Monthly payments work exactly the same way as an interest-only mortgage. The borrower chips away at the interest each month, and the loan amount is still due at the end.

Retained

Finally, with retained interest, the customer ‘borrows’ the interest and the loan amount. The final total is tallied up at the beginning based on the length of the term and is payable at the end.

For example, if the borrower wants to take out £100,000, the amount they sign up for would be more like £115,000 with fees and interest factored in.

How much can you borrow?

Most bridging lenders impose no strict limit on the amount they’re willing to hand over. As long as you can convince them your exit strategy is viable, many bridging providers will believe it is in their interest to lend you the amount you need, regardless of how much that may be.

Deals worth tens of millions and even higher are not unheard of.

Is there a minimum amount?

At the other end of the scale, certain lenders may impose a minimum loan value to ensure the deal is worthwhile. Some won’t do business if the deal is under £50,000, and others may turn you away if it’s under £30,000. But bridging finance, by nature, is flexible, so it may be possible to find a lender who will approve smaller bridging loans than that.

For the right advice on bridging loans and the amounts on offer, get in touch. A whole-of-market expert will assess your application and connect you with the best lenders.

Calculate your monthly repayments

You can use our bridging loan calculator below to get a rough idea of how much the repayments on your bridging loan are likely to be. Simply enter the loan amount, property value and term length, and our calculator will do the rest. You can also use it to compare different interest rates and loan-to-value ratios.

Term lengths

All bridge loans are offered on a short-term, interest-only basis with terms of 12 months or less as standard. Some lenders may be willing to stretch to between 18 and 24 months under the right circumstances, and the longest term you’re likely to find is 36 months.

Loans for buying land

It’s possible to get a bridging loan to buy land, but you may need a specialist lender. Many UK bridging finance providers won’t lend on land transactions as they consider them too risky.

Some lenders who offer these loans may ask you to put up additional security to safeguard the loan and place strict caps on loan-to-value, anything between 50% and 65% is common. They will also expect you to have a watertight exit strategy, and planning permission also helps.

Exit strategies for land bridging loans include…

• Selling the land post-development:
  If you use the funds to develop the plot, you could potentially sell it at a profit and use the proceeds to pay off the loan.
• A self-build mortgage:
  If you plan to build or oversee the construction of a residential property on the land (one you plan to live in afterwards), you can refinance the bridge loan to a self-build mortgage to pay off the debt.
• Development finance:
  If your plans involve building commercial premises or an investment property (such as flats), you’d refinance onto developer finance.
• A standard remortgage:
  You can take out a regular mortgage on a plot of land, borrowing against its increased value after you’ve used the loan to develop it.

Buying property

Bridging loans are available for most property types, including…

• Residential properties
• Buy-to-let properties
• Commercial properties
• Unmortgageable properties

However, some lenders restrict certain types of property because they consider them high-risk, though this is usually determined on a case-by-case basis.

Bridging mortgages

Several scenarios exist in which a borrower might consider using a personal bridge loan as a springboard to a mortgage, and we outlined some of them earlier in this article.

• Perhaps you have short-term cash flow problems or bad credit, but you know these issues will be resolved soon.
  Bridge loan funding would allow you to snap up the property in the immediate term, and taking out a residential mortgage when your credit/income problems have been resolved would cover your exit.
• Bridging loans can also be used in the event of a chain break. Let’s say you’ve found your dream home, but the sale of your existing property has fallen through, stopping the move in its tracks.
  A bridge loan would provide you with the funds to move to the new house without selling your current property. The sale can serve as the exit strategy when another buyer is found.
  Some bridging providers will be happy to lend under these circumstances if the property you’re selling has sufficient equity.
• The residential property may be considered ‘unmortgageable’ in the eyes of mainstream lenders—perhaps it lacks bathroom or kitchen facilities or a roof.
  Maybe with some bridging loan-funded renovations, the property would become habitable once again, allowing you to take out a residential mortgage to serve as the exit strategy once the works are complete.
• Some (but not all) lenders will allow you to use a bridging loan for a house deposit, but this will only be possible if you know you’ll be able to pay it back plus interest at the end of the term – in other words, you need a clearly evidenced exit strategy.

If you’re looking for bridging loan lenders in the UK for a deal involving residential property, a regulated provider is what you’ll need. The advisors we work with have access to the entire market and can connect you with the right one based on your circumstances.

Bridge-to-let mortgages

A bridge-to-let mortgage loan isn’t really a product in its own right, but this term is occasionally bandied about on bridge loan wikis and lenders’ websites. Basically, a bridging loan is used to secure a mortgage on a buy-to-let property.

Some lenders are willing to provide both the bridging loan and the BTL mortgage and will offer a bridging loan agreement in principle on the latter when the loan funds are due to be released. Under these circumstances, there’s often a loan-to-value cap of 75%, and the BTL mortgage application will need to meet the lender’s usual criteria for this product.

Buying a commercial property

There are a number of unregulated bridging providers who are willing to lend on commercial properties, and loan-to-value ratios are often the same as residential – 70% to 75% for straightforward deals and anywhere between 50% and 60% for those considered higher risk. However, some lenders either won’t touch certain types of commercial property or offer unfavourable rates as they consider them too high risk, such as petrol stations and restaurants.

Investments like these often require a specialist lender. As bridging loans are always assessed on a case-by-case basis, it’s theoretically possible to find a lender who will grant funding for any type of commercial property, from hotels and care homes to factories and farms, if you can prove the exit strategy is water-tight.

Often, there will be more stringent checks involved, and some lenders will insist that you provide a business plan so they can assess the viability of the investment.

Second charge bridging

Some lenders are willing to offer second-charge bridging finance loans. Those that do tend to offer higher interest rates under these circumstances, and the maximum loan-to-value (LTV) will likely be no higher than 70% of the gross loan amount.

Third and fourth charge bridging is less common, so you would only be able to get a loan of this nature from a specialist lender. Even then, it would have to be an exceptionally good investment to convince them to provide funds under such risky circumstances.

Are these loans available anywhere in the UK?

Pretty much. In England and Wales, the rules are no different from one city to the next, although some lenders have minimum loan/property values so high that only properties in London meet them.

North of the border, a restricted number of bridging lenders operate in Scotland, and their rules and criteria are largely the same. Your provider options will be further limited in certain Scottish postcodes and away from the mainland.

Are they still available in Northern Ireland?

Yes, although the situation is similar to Scotland in the sense that there are postcode restrictions. A small number of bridging providers are willing to offer loans for Northern Ireland and abroad, usually on an unregulated basis, and only when it’s a good deal.

Get matched with an expert bridging finance specialist

Bridging loans can be complex and come with high interest rates, but there’s a quick and easy way to simplify them and make sure you get the best deal – find the right bridging finance broker!

This is where we come in. We can find the right broker for you free of charge. Our broker-matching service will assess your needs and circumstances to pair you up with the bridging finance expert who’s best placed to assist you. This will be someone we’ve handpicked because of their track record helping customers with goals similar to yours.

Call 0330 818 7026 or make an enquiry online, and we’ll match you with your ideal bridging finance broker for a free, no-obligation chat today.