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Short and long term bridge loans

How long are the terms for bridging loans?

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By Pete Mugleston   Mortgage Advisor

Last updated: 25th June 2019 *

Customers often get in touch with us ask how long bridging loan terms are. They’re a ‘short term’ form of borrowing but what exactly does that mean? Here, you’ll find all of the key info about bridging terms and how the length of them is likely to impact on the overall cost.

The following topics are covered below…

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How long can a bridging loan be taken out for?

As bridging finance is a short-term option, most loans have a term of one year or less.

Longer terms do exist, and it may be possible to find a provider who is willing to hand out bridging finance on an agreement spanning anywhere between 18 months and 2 years. A minority will even go longer than that, under the right circumstances. The longest bridging loan term you’re likely to find even with whole-of-market access is 36 months.

What is classed as a short term bridge loan?

Technically speaking, the vast majority of bridging finance deals are classed as short term bridging loans as most of them are 12 months or less.

That said, some are shorter than others and certain providers may insist on a minimum loan term. Most lenders have a minimum term of one month, but others may consider going lower, as long as the borrower’s plans for the funds and the exit strategy are viable.

Whether you’re seeking short term bridging finance or a deal with a slightly longer term, get in touch and the expert advisors we work with will connect you with the right lender.

What is the maximum term for a bridging loan?

Most bridging finance providers are reluctant to go beyond a 12 month bridging loan term, but there are some who will go for longer. Some may be willing to offer you a bridging loan with a term of anywhere between 18 months and two years, under the right circumstances.

The longest bridging loan term you’ll find is 36 months, offered by a minority of lenders.

How long does bridging finance take to arrange?

Whether you’re after short term bridging finance or a bridge loan with a longer term than average, the good news is that these products are super-fast to arrange. In the most straightforward cases, it’s possible to have a conditional offer on the table within several days of the initial application, subject to a valuation on the property in question.

Bridging finance is much quicker than a mortgage application because the lender’s decision usually hinges on the exit strategy. If that is viable and can be evidenced, the most important part of the underwriting process is taken care of.

On average, it can take anywhere between 5 and 14 days for the entire process to be completed, but there are lenders who might be able to get the funds to you faster, depending on the complexity of the deal and you as a borrower.

What happens if I cannot settle my bridging loan at the end of term?

So you’ve chosen a short term bridge loan instead of a mortgage but are unable to settle up at the end of term. What happens next? Well, most lenders are likely to consider extending the term slightly, as long as your exit strategy is on course to work out within the revised time-frame. Expect to be hit with hefty fees and charges if this happens, though.

Whether the term is extended is entirely at the lender’s discretion, and some may consider initiating repossession proceedings if they do not believe an exit is forthcoming.

Can I refinance a bridge loan to extend it?

This may be possible depending on affordability and the loan to value ratio, but expect your exit strategy to come under increased scrutiny if it’s already failed once before.

How interest is charged on a bridge loan

Bridging loan lenders charge interest in several different ways, and the overall cost of the deal will come down to how long the term is…

  • Monthly interest:
    A bridging loan with monthly interest payments functions in much the same way as an interest only mortgage, in the sense that you will pay the interest off on a monthly basis and pay the full loan amount back at the end of the term.
  • Deferred or rolled up:
    Each month, the interest is compounded added to the loan amount and the cumulative total is due at the end of the term.
  • Retained:
    The applicant borrows the interest for a set period and pays the full amount when it’s time to settle up.
    The interest is calculated at the beginning of the term, based on how long you’re planning to take the loan for, so a short term bridge loan of £100,000 on a 6-month deal with 1% interest would set you back £106,000 at the end of the term.
    These figures are of course an approximation, so you should always check with your lender or broker for the most up to date information.

Open vs. closed bridging loans

One distinction we need to make when need to make when discussing bridging loan term lengths is between open and closed bridging loans.

Closed bridging loans have a more defined repayment date. They must be settled up on a specific day, and therefore need a water-tight exit strategy behind them. Closed bridging loans tend to come with lower interest rates than open but are harder to come by.

Open bridging finance has a less defined repayment date but the loan must be settled within a certain time-frame (usually 12 months or less). They can be settled without incurring early repayment charges, should you exit strategy pay out sooner than expected.

How to get the best bridge loan rates

Each bridging finance application is judged on a case by case basis, but lenders tend to be the most flexible and reserve their best rates for borrowers with the following…

  • A viable exit strategy:
    Exit strategy (i.e. how you plan to repay the loan at the end of term) is of paramount importance to bridging lenders. Where short term bridging loans for property investment are concerned, the exit plan usually involves either the sale of the property or a remortgage, so expect the lender to request a full valuation report or proof of a deal in principle. The quicker and easier you can secure a sale/refinance agreement, the better from the lender’s perspective.
  • A good security property:
    The more sellable and the property you’ve secured the loan against, the better. The lender will determine this based on factors such as location and any variables that might put off prospective buyers, such as leaseholds and non-standard construction (e.g. thatched roofs, timber frames).
  • Clean credit:
    Bad credit is not a deal-breaker for many bridging lenders, as there are providers who specialise in it. In general, though, having a clean credit rating makes you a lower risk borrower, and therefore eligible for the best deals. Some lenders are cautious of bad credit borrowers if the exit strategy is a remortgage and underwriters are mindful of further adverse building up during the term.
  • Experience in property:
    Again, this isn’t a deal-breaker for all providers as there are ones who cater for first-time developers - but with experience in property under your belt, the lender will likely be more confident in your ability to achieve whatever plans you might have for the bridging loan. If it’s a particularly complex development project, some lenders might even insist on it and request evidence of past projects.
  • A healthy deposit:
    Most bridging loan lenders will ask for a deposit of 30-35% of the property’s value, but putting down more (if you’re in the position to) could help offset any risk involved in the deal. The best rates tend to be reserved for borrowers with a deposit of 40% or more.

If you’re looking for a bridging loan with either a longer or shorter term than usual, it will certainly help if you tick some or all of the above boxes. Whole-of-market access will also be of great benefit and the advisors we work with have exactly that, so make an enquiry to speak with them on the phone - they can connect you with the right lender.

Speak to a bridging loans expert

If you liked anything in this article or would like to know more about short and longer term bridging loans, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the bridging finance lender with the right expertise for your personal circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 25th June 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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