How do bridging loans work?

What Is a Bridging Loan?

A bridging loan is a short-term secured loan used to “bridge” a financial gap — most commonly between buying a new property and selling an existing one. They’re also used to fund property purchases quickly when standard mortgage timescales won’t work, or to finance renovation projects before refinancing to a standard mortgage.

Unlike a mortgage, which is repaid monthly over decades, a bridging loan is typically repaid in one lump sum at the end of the term — either from a property sale or a refinance onto longer-term finance.

How the Process Works

Getting a bridging loan involves five key steps:

1. Application — You apply with details of the property being used as security and your intended exit strategy (how you’ll repay the loan).
2. Valuation — The lender commissions an independent valuation of the security property. This can often be completed within 24-48 hours.
3. Offer — The lender issues a formal offer, typically within 3-7 days of application.
4. Legal work — Solicitors on both sides complete the legal due diligence. This is often the longest stage, taking 1-2 weeks.
5. Drawdown — Funds are released to your solicitor and can be used immediately. Total time from application to funds is typically 2-4 weeks, though some lenders can move faster.

Types of Bridging Loans

Regulated vs Unregulated

• Regulated bridging loans — where the security property is or will be your primary residence. These are overseen by the FCA and carry more consumer protections.
• Unregulated bridging loans — for investment properties, commercial premises, or land. Less red tape, often faster, but fewer protections.

First Charge vs Second Charge

• First charge — the bridging lender has first claim on the property if you default. Available when there’s no existing mortgage on the security property.
• Second charge — the bridging loan sits behind an existing mortgage. The existing mortgage lender has first claim. Usually slightly higher rates to reflect the additional risk.

Costs to Expect

Bridging loans are more expensive than mortgages. Typical costs include:

• Interest — 0.4% to 1.5% per month (roughly 5% to 18% annualised). Interest is usually rolled up and paid at the end rather than monthly.
• Arrangement fee — typically 1-2% of the loan amount, often deducted from the advance.
• Valuation fee — £300 to £1,500 depending on property type and value.
• Legal fees — your solicitor plus the lender’s solicitor, typically £1,500-£3,000 total.
• Exit fee — some lenders charge 1% on redemption, though many have removed this.

When a Bridging Loan Makes Sense

Bridging loans are the right tool when:

• You’re buying at auction (typically 28-day completion required)
• You’re in a chain that has broken and need to move fast to secure a property
• The property is unmortgageable in its current condition (no kitchen, bathroom, or structurally compromised)
• You need to buy before your existing property sells
• You’re a developer funding a renovation before refinancing to a standard buy-to-let mortgage

When It Doesn’t Make Sense

Avoid bridging finance if:

• You have a clear exit strategy but no realistic timeline to execute it
• The costs would leave you in negative equity
• You could achieve your goal with a standard mortgage — the rate difference is significant
• You’re under financial pressure and the repayment date isn’t realistic

Bridging loans reward borrowers with a clear plan and a solid exit. Without those two elements, they can become an expensive trap.