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A Guide to the Costs and Fees Associated with Bridging Finance

What fees, costs, charges and interest rates can I expect to pay on a bridging loan?

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 21st October 2019 *

Bridging loans typically come with high interest rates, so it’s important to work out the overall cost before signing on the dotted line.

This guide to bridging finance costs and fees will help you establish how affordable these loans are to somebody in your circumstances.

The following topics are covered below…

If you need a bridging loan, speak to one of the expert advisors we work with. All the experts are whole-of-market brokers with access to all the lenders across the UK. They have the knowledge and experience to help you secure the right bridging loan for your needs at the best possible rates.

Call 0808 189 2301 or make an enquiry for a free, no obligation chat.

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How do bridging loans work?

Bridging loans are short-term borrowing solutions designed to provide fast funding. Quite literally, they 'bridge’ the gap between a debt and a main line of credit becoming available. 

The most important thing is to be able to evidence a strong exit strategy to the lender so that they can confidently agree to the loan because they can understand how and when you will be in a position to repay the debt. 

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.

Because lenders charge both interest and fees, bridging loans can prove to be an expensive option. 

Interest is charged at a monthly rate rather than an annual percentage rate (APR) because they are designed to last only a few weeks or months.

How much does a bridging loan cost?

In order to work out the overall cost of a bridging loan, it’s important to be aware of the fees you’ll face in addition to the interest charges. They are as follows…

Arrangement/broker fees

Bridging loan costs typically include arrangement fees and they usually amount to a percentage of the loan. Around 2% is standard, but some lenders may drop to 1% if you take out a particularly large sum, and others may waive this fee entirely.

Some providers will also charge admin fees if you decide to take out the loan.

Take note: You should avoid brokers who charge heavy upfront fees that are not refundable, as brokers should only be paid on success. The advisors we work with only charge if they secure a deal and will refund any upfront charges if this isn’t the case. Make an enquiry to be connected with them.

Valuation fees

To set up a bridging loan, a valuation on the property or properties the borrower has put up as security must be carried out. This is payable to the surveyor or lender and the cost will vary depending on the asset’s value, location and the type of valuation required.

There will be times when a desktop valuation - i.e. one that is carried out remotely via the internet - will suffice, and this will add less to your overall bridging finance costs than a drive-by valuation (conducted outside the property) or a full on-site valuation.

Take note: If you’re putting up more than one property/asset as security, you may have to pay extra valuation fees, as a separate valuation will be needed for each of them.

Exit fees

Another thing to factor in when tallying up a bridging loan’s cost is possible exit fees. Some (but not all) lenders charge a redemption fee for removing their charge from a security property. Around 1% is standard and this is added to the loan when it is redeemed.

Solicitor fees

Both the redemption fee and any solicitor fees fall under the ‘legal costs’ banner when calculating how much a bridging loan would cost. The lender will use a solicitor to carry out the legal due diligence and may expect you to foot the bill. This will be in addition to your own legal costs and the amount you’ll end up liable for can vary across the board.

If you’re looking for cheap bridging loans with the best rates on the market, get in touch and the whole-of-market advisors we work with will connect you to the right lender for someone in your circumstances.

How interest is charged

The overall cost of bridging loans also comes down to how much interest you will pay, and how the lender will charge it. There are three ways bridging providers charge interest…

  • Monthly:
    This works in much the same way as an interest only mortgage. You pay the interest off each month and it is not added to the loan.
  • Deferred or rolled up:
    The interest is added to the loan amount each month and the cumulative total is payable at the end of term. For instance, with a £100,000 loan, £1,000 interest might be added at the end of the first month, taking the total owed to £101,000. In month two, £1,100 in interest will be added, taking the total to £102,000, and so on.
  • Retained:
    You borrow the interest for a set period and the full amount is payable when it’s time to settle up. The total interest is calculated at the beginning of the term based on how long you’re borrowing the funds for, and you will be given a settlement figure at the end.
    For example, if you have a £100,000 loan at 1% interest on a 12-month term, the total amount requested at the end would be £112,000 (loan amount + £12,000 interest). Settle the same loan after six months and the amount due would drop to £106,000.

If you’re unsure whether to request bridging finance with retained, deferred or monthly interest repayments, get in touch. The experts we work with will offer their insight and connect you with the provider offering the cheapest bridging loans, as well as the best rates, for somebody in your circumstances.

How to get the best rates

The average cost of a bridging loan can vary dramatically depending on the lender and how high risk the borrower is.

The key to finding the cheapest bridging loan is having whole-of-market access and meeting the eligibility criteria at as many lenders as possible.

Although what’s acceptable at one lender might be frowned upon at another, bridging providers tend to reserve their most favourable rates for borrowers with the following…

  • A viable exit strategy
  • Good security
  • Clean credit
  • Experience in property

Find out more about securing the best bridging loan rates.

How much deposit do I need?

To work out the amount you can borrow, we must also factor in how much deposit you’ll have to contribute.

Most bridging finance is offered with a loan to value (LTV) ratio of 70-75% of the gross loan amount, so at many UK lenders you will need a deposit of at least 30-35%.

100% LTV bridging loans

It is possible to secure a bridging loan with higher LTV - up to 100% in specific cases - but lenders usually only offer these deals when you put up extra security, i.e. safeguard the loan against another property or properties. Certain lenders may also allow you to put up other assets besides property as additional security, making a deposit unnecessary.

Find out more about 100% LTV bridging deals.

Are the costs and fees any different for unregulated bridge loans?

The cost of bridging loans is generally the same whether they’re regulated or unregulated.

Regulated bridge loans are secured against a property that is, or is due to be, occupied by the applicant. They are regulated by the Financial Conduct Authority (FCA), which means the borrower is protected against poor advice and mis-selling from lenders or brokers.

Unregulated bridging loans, meanwhile, are used to purchase investment or commercial property, including buy to lets. They are not regulated because commercial borrowers need more flexibility and agreements that are tailored to their needs.

Take note: For regulated bridging loans, most lenders will want the borrower to have some form of provable income. This isn’t always a necessity for non-regulated, as the lending decision can be based on the viability of the investment.

Are there extra fees if I can’t settle up at the end of term?

Extra fees are a possibility if you’re unable to settle a bridging loan at the end of term. Some lenders will consider extending the agreement slightly if you can’t pay up, but you will usually be hit with extra charges in this scenario.

One option is to refinance the bridge loan (LTV and affordability permitting) but you can expect to find your new exit plan under extra scrutiny from the lender, since your previous one didn’t pan out. Some providers may allow this, but it will depend on the perceived risk.

Ultimately, whether the bridging loan term is extended is at the lender’s discretion, and some will simply activate repossession proceedings if there’s no exit in sight.

If you’re still wondering about the potential cost of a bridging loan and whether you’d be able to afford one, get in touch and the expert advisors we work with will discuss your application and connect you with the lender offering the best rates.

Open vs. closed bridging finance

Whether you need a closed or open bridging loan will depend on your specific circumstances.

With a closed bridging loan lenders know how and when you intend to repay the loan. If you have a specific exit strategy you are confident in, a closed bridge loan should suit your needs well.

Circumstances where a closed bridge loan may be appropriate might be when you are awaiting inheritance money to be released and know the date when this is expected to complete.

Generally, closed loans offer lower interest rates because the lender knows when the loan will be repaid and how. This reduces the risk the lender is taking with the loan.

If you do not have a clear exit strategy you’ll need an open bridging loan. You will, obviously, have to pay back the loan on the due date and will need to know how you intend to achieve this, but with an open loan, you don't have to have a fixed date for repaying the loan.

An example of when an open bridging loan may be a good solution is if you're selling a property but haven't found a buyer or you have buyer but don't yet know when the sale will complete.

Open bridging loans are viewed by lenders as more risky and this is reflected in the higher interest rates charged by most lenders.

Can I pay off a bridging loan early?

It’s absolutely possible to pay off a bridging loan early.

If you are in a position to do so, it’s always in your best interest to pay it off as you save on interest. This is especially true if you have an open bridging loan.

Speak to an expert

If you would like to know more, call 0808 189 2301 or make an enquiry.

We’ll match you with one of the experts we work with. They will be happy to answer all your questions and help you find a bridging loan to suit your needs. 

All the experts we work with are whole-of-market brokers with access to lenders across the whole UK. They have the tools and experience to save you time, hassle and money.

The service we offer is free, there’s no obligation and we won’t leave a mark on your credit rating.

Updated: 21st October 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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