Bridging Finance
What is a bridging loan?
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Bridging Loans: What is a bridging loan?
What exactly is a bridging loan?
What is a bridging loan is massive question as there are so many different scenarios a bridging loan can be used for. A simple summary is a bridging loan is a short-term funding option used primarily in property transactions. It ‘bridges’ the financial gap when timing mismatches occur between the sale and purchase of properties. This type of loan is useful when you need quick cash to secure a property before selling your current one.
You can arrange bridging loans quickly when you need to act fast. They are used by homebuyers, property developers, and investors. The loan terms usually range from a few weeks to 12 months, offering a flexible financial solution during transitional periods.
How do bridging loans work?
Bridging loans offer a swift cash influx to help you manage property transactions. You can use these loans to buy a property while waiting for the sale of another. Lenders provide the money fast, and you pay it back once your old property sells or you secure long-term financing.
These loans are secured against property, meaning the lender can sell the property if you don’t pay back the loan. Interest rates on bridging loans can be higher than other types of loans. This is because they are short-term and offer quick access to large sums of money.
Types of bridging loans
Bridging loans can be used in many different circumstances. Lenders recognise this and have developed products which are structured to work in different ways.
What is a bridging loan interest payment? – serviced, rolled up or retained
There are also different ways in which the interest can be handled depending on the circumstances. Unlike a mortgage, the interest does not need to be serviced on a monthly basis. Many lenders offer an option of service interest, retained interest or rolled interest. The advantage of retained interest or rolled interest is that the interest repayments are added to the loan and repaid when you settle the loan. This is normally from the proceeds of the sale of the property or with a remortgage.
Having a bridging loan with retained or rolled interest can improve your cash flow. For people who don’t have sufficient income to afford the monthly interest repayments it is the only option.
A significant downside of rolled up or retained interest is that the interest is deducted from the maximum gross loan. Therefore if you are looking to borrow the maximum loan to value, once the interest is deducted, you will end up with less in your hand then if you service the loan. This first video guide will tell you more.
Standard Residential Bridging Loans
Residential bridging loans are commonly used for standard houses and flats that require little to no work. They are often taken out by property investors or homeowners in a chain break scenario—for example, buying a new home before selling the current one.
Loan-to-value (LTV) ratios for residential bridging loans typically reach up to 70–75%, with monthly interest rates starting from around 0.55% for lower LTVs, rising to approximately 1% per month depending on the circumstances.
Bridging loans are also used by people to buy a house to live in before they have sold their existing home. The loan can often be secured over the property they live in and the property they are buying. It’s particularly common for people who are downsizing and have perhaps already paid off their mortgage. Bridging loans secured on the borrowers home are regulated by the Financial Conduct Authority. More stringent rules apply to regulated bridging loans – click here for more.
Commercial Bridging Loans
Commercial bridging loans are secured against commercial buildings, mixed-use properties, or even land. Because these types of assets are considered higher risk and can take longer to sell or refinance, LTVs are usually between 60% and 70%, with interest rates averaging around 1% per month.
These loans are ideal for businesses or investors who need short-term funding for commercial property purchases, refinancing, or cash flow support.
Residential Light Refurbishment Bridging Loans
Light refurbishment bridging loans are designed for residential properties requiring cosmetic upgrades rather than major structural changes. Typical projects include installing a new kitchen, bathroom, boiler, redecoration, or rewiring.
Lenders may offer up to 85% gross loan-to-value (after fees and interest are deducted), or alternatively, 70–75% net LTV with rolled-up interest. In many cases, borrowers can also access a drawdown facility to release additional funds as refurbishment work progresses.
The key factor lenders assess is the after-refurbishment value (Gross Development Value), meaning there must be an expected significant uplift in the property’s value once works are complete.
What is a Heavy Refurbishment Bridging Loan?
Heavy refurbishment bridging loans apply where substantial works are required, often including structural changes, extensions, or conversions. Typically, this involves projects where refurbishment costs exceed 20% of the property’s current value.
These loans are structured around the gross development value (GDV) of the property. Borrowers usually fund the first stage of works themselves, after which the lender reimburses costs in phases through a drawdown facility.
Interest rates may be slightly higher and LTVs slightly lower than light refurbishment loans, but the flexibility to fund larger projects makes them a popular choice for property developers.
What is a Property Conversion Bridging Loan?
Property conversion bridging loans are closely related to heavy refurbishment loans but usually involve a change of use that requires planning permission—for example, converting an office into residential flats.
Lenders normally require planning consent to be in place before approving the facility. However, some may provide an initial bridging loan to purchase and hold the property, followed by a development finance facility once planning is granted.
What is a Development Bridging Loan?
Development bridging finance is used for ground-up construction projects or extensive structural redevelopments. These loans are assessed heavily on the developer’s experience and the strength of the contractor agreement, often under a JCT contract with a financially stable builder.
Because development projects carry higher risks, lenders focus on the gross development value (GDV), ensuring the project is viable and profitable. Strong documentation and experienced partners are key to securing this type of bridging finance.
Hybrid Bridging Loans
Hybrid bridging loans combine the flexibility of bridging finance with the stability of a longer-term mortgage. They are pHybrid bridging loans combine the flexibility of bridging finance with the stability of a longer-term mortgage. They are particularly useful when:
A business premises purchase cannot be supported by current accounts.
An investment property requires refurbishment before generating rental income.
These facilities often feature bridging finance with rolled-up interest for 6–9 months, before converting into a long-term, interest-only mortgage. While the long-term rates may be slightly higher than standard lenders, hybrid loans provide improved cash flow and peace of mind for borrowers needing a blend of short- and long-term funding.
Benefits of using a bridging loan
Additionally, bridging loans can help if you’re buying at auction. Properties at auction require quick payment, and a bridging loan can give you the funds you need to complete the purchase swiftly.
Bridging loans can be very beneficial in the right circumstances. They allow you to seize property opportunities quickly, without having to wait for your current property to sell. This can be crucial in a competitive market.
Lastly, these loans can also provide funding for property development. Developers often use bridging loans to buy and renovate properties before obtaining longer-term financing.
Risks and considerations
There are risks involved with bridging loans, despite many benefits. The most significant is the higher interest rates, which can add up quickly over time. It’s essential to have a clear exit strategy to repay the loan without accruing too much interest.
There is a risk of losing your property if you fail to repay the loan. Always consider this risk and have backup plans in place.
It’s also important to compare different lenders to find the best terms and rates. Not all lenders offer the same deals, and some may have hidden fees that can increase the cost of the loan.
People Also Asked
Can I get a bridging loan with bad credit?
Yes, it’s possible to get a bridging loan with bad credit. Lenders are more concerned with the value of the property you are securing the loan against than your credit score.
How quickly can I get a bridging loan?
You can often get a bridging loan within a few days to a week. The key is having all your documents ready and finding a lender who can process loans quickly.
What are the typical interest rates for bridging loans?
Interest rates for bridging loans vary, but they are generally higher than those for traditional mortgages due to the short-term nature and risk involved. At the time of writing, bridging rates vary from 0.55% to 1.5% per month. It’s your brokers job to find the best bridging loan for your scenario.
Are there alternatives to bridging loans?
Yes, alternatives include traditional loans, personal loans, or waiting until your current property sells. Each option has its pros and cons, depending on your situation.
How do I choose the right bridging loan?
Consider the loan terms, interest rates, fees, and the lender’s reputation. Also, assess your financial situation and ensure you have a solid plan to repay the loan.
Whole-of-Market Guidance for What Is Bridging Loan
Securing competitive terms on what is bridging loan requires expert underwriting knowledge. In addition, our specialist broker team works directly with over 90 specialist lenders across the UK.
Consequently, reviewing your what is bridging loan 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: What Is Bridging Loan 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.
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.
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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.