Bridging Finance
How do bridging loans work?
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How do bridging loans work?
How do bridging loans work?
Bridging loans are a form of short-term funding that can help you manage the gap between making a purchase and getting funds from another source, like selling a property. They are often used in property deals to help buyers complete purchases before selling their existing home. This type of loan is quick to arrange, but it’s important to understand how they work before you decide to take one.
Understanding Bridging Loans
Bridging loans are designed to help you cover costs for a short time. This is why they are ideal for property transactions. They let you buy a new home before you sell your old one. Typically, the loan is set up to last for a few weeks up to 12 months.
Security is generally placed on one or both properties. The amount which can be borrowed is determined by the available equity in the security properties. On residential properties loans are available up to 75% loan to value. On commercial properties and land the loan to value is generally lower.
The loan is structured in such a way that the interest repayments can be rolled up into the loan and repaid when the loan is settled. The advantage of this is that it can help with the borrowers cash flow. It can also allow people to borrow money they can’t afford to service on a monthly basis. However, the amount of Interest is deducted from the gross loan so borrowers will receive less in hand from the loan proceeds.
These loans can be ‘closed’ or ‘open’.
Closed loans have a fixed end date. This is often used when you know when funds will be available.
Open loans do not have a set end date. This type of loan is less common requiring much more detail about eventual exit.
Costs and Interest Rates
The cost of bridging loans can be high. Interest rates are usually higher than for a standard mortgage. This reflects the short-term nature and risk involved in these loans. Interest might be charged monthly, or added to the loan to be paid at the end.
There are also fees to consider. These can include arrangement fees, exit fees, and legal fees. It’s vital to factor these into your planning to avoid surprises. See more information on the costs of Bridging Loans here
Application Process
Applying for a bridging loan is quicker than getting a mortgage. Lenders will still need to assess your credit and the value of the property. They will also look at your plan for paying the loan back. This is often from selling a property or getting a mortgage.
You will need to provide details about the property, proof of your income, and your exit strategy. The lender will use this info to decide if they can offer you the loan.
Pros and Cons
Bridging loans can offer a solution when timing is crucial. They can help you snap up a property quickly, without waiting to sell your current home. However, the costs are high, and the stakes are higher if your exit strategy fails.
On the plus side, the flexibility of bridging loans can make complex property chains or auction purchases much easier. On the downside, if your property does not sell, you face high-interest charges and potential debt.
Alternatives to Bridging Loans
If a bridging loan seems too risky or expensive, there are alternatives. These include extending your mortgage, taking out a personal loan, or borrowing from family. Each option has its pros and cons, depending on your financial situation and needs.
For instance, a mortgage extension can offer lower interest rates but might not be available as quickly as a bridging loan. Personal loans offer fixed interest rates but might not provide enough funds for all property prices.
People Also Asked
Are bridging loans a good idea?
Bridging loans can be a good option if you need quick funding and have a clear exit strategy. However, they are risky and expensive, so they should be considered carefully.
How fast can I get a bridging loan?
You can often get a bridging loan within a few weeks, much faster than a traditional mortgage.
What happens if I can’t pay back a bridging loan?
If you can’t repay the loan, the lender may take possession of the property used as security. This can lead to serious financial consequences.
Can I get a bridging loan with bad credit?
It’s possible to get a bridging loan with bad credit, but the interest rates will be higher, and you might need additional security.
More information on bridging loans with bad credit here.
Is it better to get a mortgage or a bridging loan?
This depends on your situation. A mortgage is usually cheaper but takes longer to arrange. A bridging loan is faster but more costly and riskier.
Whole-of-Market Guidance for How Bridging Loans Work
Securing competitive terms on how bridging loans work requires expert underwriting knowledge. In addition, our specialist broker team works directly with over 90 specialist lenders across the UK.
Consequently, reviewing your how bridging loans work options with an FCA-authorised specialist credit broker ensures whole-of-market access while avoiding unnecessary fees and delays.
Specialist Underwriting & Whole-of-Market Access
Because specialist lending facilities require bespoke underwriting, comparing lenders across the UK is essential. Explore our complete guide to Bridging Loans Desk to understand how different lending criteria apply to your requirements.
Promise Money is an independent credit broker authorised and regulated by the Financial Conduct Authority (FRN 681423). Our experienced team reviews your specific circumstances to secure optimal terms across 90+ UK lenders.
Key Takeaways: How Bridging Loans Work Checklist
Additionally, property valuations can often be expedited or desktop-assessed, significantly reducing upfront costs and surveyor delays.
Furthermore, specialist bridging lenders assess affordability based on property equity rather than strict credit scoring alone.
Consequently, time-critical auction purchases and broken chains can complete in as little as 3 to 7 working days.
Therefore, working with Promise Money ensures you compare optimal rates and terms across 90+ UK lenders.
Specifically, flexible interest options—including retained, rolled-up, or serviced interest—can be tailored to protect your cashflow.
Moreover, facility agreements can be structured with zero redemption penalties as soon as long-term funds are ready.
In addition, non-standard property construction such as timber frame or concrete can be financed without high street restrictions.
Crucially, borrowers facing historic credit blips or complex income structures can secure competitive terms through our panel.
In practice, working with experienced specialist solicitors prevents administrative hold-ups and keeps legal fees completely transparent.
Above all, establishing a verified exit strategy—such as property sale or remortgage—ensures smooth facility redemption.
As a result, property investors and homeowners retain complete control over project timelines and financial commitments.
After all, independent whole-of-market guidance ensures you never pay unnecessary arrangement fees or higher interest margins.
Meanwhile, bridging facilities can be secured across multiple properties to maximize borrowing capacity without selling assets prematurely.
Indeed, rapid decision turnaround gives you the confidence to bid decisively at property auctions.
Finally, clear illustrations provide total transparency regarding interest roll-up, arrangement fees, and net advance figures.
Unlike standard mortgages, specialist bridging finance provides fast liquidity when conventional banking channels are too rigid.
Fortunately, regulated bridging options provide statutory protection when securing loans against residential family homes.
Ultimately, dedicated case managers coordinate directly with lenders and surveyors to keep your completion strictly on schedule.
Similarly, adverse credit bridging lenders focus on overall equity and future redemption rather than automated scores.
Because bespoke bridging structures address unique borrower requirements, comparing terms across 90+ lenders guarantees optimal results.
Specifically, flexible interest options—including retained, rolled-up, or serviced interest—can be tailored to protect your cashflow.
Moreover, facility agreements can be structured with zero redemption penalties as soon as long-term funds are ready.
In addition, non-standard property construction such as timber frame or concrete can be financed without high street restrictions.
Crucially, borrowers facing historic credit blips or complex income structures can secure competitive terms through our panel.
In practice, working with experienced specialist solicitors prevents administrative hold-ups and keeps legal fees completely transparent.
Above all, establishing a verified exit strategy—such as property sale or remortgage—ensures smooth facility redemption.
As a result, property investors and homeowners retain complete control over project timelines and financial commitments.
After all, independent whole-of-market guidance ensures you never pay unnecessary arrangement fees or higher interest margins.
Meanwhile, bridging facilities can be secured across multiple properties to maximize borrowing capacity without selling assets prematurely.
Indeed, rapid decision turnaround gives you the confidence to bid decisively at property auctions.
Finally, clear illustrations provide total transparency regarding interest roll-up, arrangement fees, and net advance figures.
Unlike standard mortgages, specialist bridging finance provides fast liquidity when conventional banking channels are too rigid.
Fortunately, regulated bridging options provide statutory protection when securing loans against residential family homes.
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Meet our specialist team
Learn about our 35 year story >
Steve Walker
Managing Director – 40 years of experience
Founding chairman of the Corporation of Finance Brokers. Specialist in UK residential mortgages, secured loans, and regulated bridging.
Simon Carr
Commercial Director – Proptech
Specialist in complex mortgages, commercial underwriting, and developer finance. Architect of Promise Money’s automated lending tools.