How Do Bridging Loans Work?

A bridging loan is a short-term, interest-only loan secured against property. It is designed to bridge a funding gap, most commonly between buying a new property and selling an existing one, or between a purchase and longer-term refinance. Unlike a standard mortgage, which may take 8 to 12 weeks to arrange, bridging finance can often be completed in 1 to 3 weeks, making it a practical option when speed is essential.

Bridging loans are secured against bricks and mortar. The lender places a legal charge on the property (or properties) you offer as security, and you repay the loan through an agreed exit strategy, typically a property sale or remortgage. Interest is usually quoted monthly rather than annually, and in most cases it is not paid month by month during the loan term. Instead, it is retained (deducted from the advance upfront) or rolled up (added to the balance and paid at the end).

The 6-Step Bridging Loan Process

Step 1: Enquiry and initial assessment. You approach a lender or broker with details of the property, the amount you need, and your proposed exit strategy. The lender provides an indicative terms sheet outlining the likely rate, fees, and loan-to-value ratio.

Step 2: Valuation of the security property. A RICS-qualified surveyor inspects the property to confirm its current market value. For refurbishment or development cases, the surveyor also assesses the projected value once works are complete (the gross development value).

Step 3: Underwriting and legal checks. The lender's underwriters verify that the loan is affordable, review your credit history, carry out anti-money-laundering checks, and confirm that the title is clean.

Step 4: Loan offer and legal charge. Once underwriting is complete, the lender issues a formal offer. Your solicitor and the lender's solicitor handle the legal work, and a first or second charge is registered against the property.

Step 5: Funds released. The loan amount is transferred to your solicitor and then on to you or the seller. This typically happens within 5 to 21 days of the initial application, depending on complexity.

Step 6: Repayment via the exit strategy. At the end of the term, you repay the capital plus any accrued interest through your agreed exit, whether that is selling the property, completing a remortgage, or another pre-arranged route.

To see what a bridging loan could cost for your specific situation, try our bridging loan calculator.

Bridging loans are broadly split into two categories by repayment structure and two by the type of legal charge placed on your property. Understanding these distinctions helps you compare products and negotiate better terms.

Open vs Closed Bridging Loans

A closed bridging loan has a fixed repayment date, usually tied to a confirmed event such as an exchanged contract on a property sale. Because the lender has greater certainty about when the money will be returned, closed loans tend to carry lower interest rates and are generally easier to arrange.

An open bridging loan has no fixed repayment date, giving you more flexibility. Most lenders cap the term at 12 months, and some require evidence of a credible exit strategy even without a firm completion date. The added uncertainty for the lender typically means a slightly higher monthly rate compared to a closed loan on otherwise identical terms.

First-Charge vs Second-Charge Bridging Loans

A charge is the legal claim a lender registers against your property. If the property is unencumbered (no existing mortgage), the bridging lender takes a first charge, giving it priority if the property is sold to recover debts.

If you already have a mortgage on the property, the bridging lender takes a second charge, sitting behind your existing mortgage provider. Second-charge bridging loans usually carry higher interest rates because the lender's position is less secure. They also require consent from your first-charge lender, which can add a few days to the process.

In practical terms, a first-charge bridging loan on a property worth £500,000 at 65% LTV might attract a rate of 0.55% to 0.75% per month, while a second-charge loan on the same property could be priced at 0.85% to 1.2% per month. For a full breakdown of how regulation affects your protections, see our guide to regulated and unregulated bridging loans.

The amount you can borrow with a bridging loan depends on the value of the property you offer as security, the strength of your exit strategy, and the lender's appetite for the specific deal.

Most bridging lenders will advance up to 75% of the property's current market value, known as the loan-to-value (LTV) ratio. Some specialist lenders will go higher, up to 80% or even 85% LTV, but expect to pay a premium rate for anything above 75%. If you can offer additional security, such as a second property or other assets, some lenders will consider a net LTV of up to 100% across the combined portfolio.

Loan sizes typically range from around £25,000 at the lower end to £25 million or more for large commercial or development transactions. The sweet spot for most specialist bridging lenders sits between £100,000 and £5 million, where competition among lenders is strongest and rates tend to be most competitive.

Several factors influence how much a lender will offer. The type and condition of the property matters: a standard residential house in a liquid market is viewed more favourably than a semi-derelict commercial unit. Your exit strategy is equally important, as a lender will be more generous on LTV if you have exchanged contracts on a sale than if your exit relies on obtaining planning permission that has not yet been granted. Your credit history plays a role too, although bridging lenders are generally more flexible than high-street banks on this point.

Bridging loan costs are quoted differently from standard mortgages, and understanding the fee structure is essential before you commit. Interest on a bridging loan is almost always quoted as a monthly rate rather than an annual percentage rate. A rate of 0.75% per month, for example, equates to roughly 9% per year, but because bridging loans run for months rather than decades, the monthly figure is a more practical way to compare lenders.

Typical monthly interest rates currently range from around 0.55% for low-risk, first-charge loans at modest LTV to 1.5% or more for higher-risk transactions such as second-charge loans, high LTV, or properties in poor condition.

On top of interest, expect to pay an arrangement fee (sometimes called a facility fee), usually around 2% of the loan amount. Some lenders charge this upfront, while others deduct it from the loan advance. You will also incur valuation fees (typically £500 to £1,500 depending on property value), lender legal fees, and your own solicitor's costs.

Worked Example: £250,000 Bridging Loan at 0.75% per Month

Figures are indicative only, based on typical lender terms. Actual costs will vary by lender and individual circumstances. Valuation and legal fees are not included in the totals above.

How Interest Is Structured

Retained interest is the most common arrangement. The lender calculates the total interest for the agreed term and deducts it from your loan advance upfront. You receive less than the headline loan amount, but you make no monthly payments during the term. If you repay early, most lenders will refund the unused interest.

Serviced interest works like a traditional loan: you pay interest monthly throughout the term. This means you receive the full loan amount, but you need to demonstrate that you can afford the monthly payments.

Rolled-up interest is added to the loan balance each month and paid in full when you repay the loan. You make no monthly payments and receive the full advance, but the total amount owed grows over time.

For current bridging loan interest rates across the market, see our dedicated comparison page.

Your exit strategy is the single most important factor a bridging lender will scrutinise when assessing your application. It is the plan for how you will repay the loan, and it determines not only whether you are approved but also the rate and terms you are offered.

The three most common exit strategies are property sale, remortgage onto a longer-term product, and refinance through another funding source. A lender will want to see evidence that your chosen exit is realistic and achievable within the loan term. If you plan to sell, they will look at comparable sales data and the current state of the local market. If you plan to remortgage, they will want to know that you are likely to qualify for the mortgage product in question.

What Happens if Your Exit Strategy Fails?

This is a question many borrowers overlook, and one that no lender will ignore. If your property sale falls through or your remortgage application is declined, you face several possible outcomes. The lender may agree to extend the loan term, usually at a higher rate and with additional fees. You could refinance onto another bridging loan with a different lender, though this adds cost and complexity. In the worst case, if no resolution is found, the lender has the right to enforce its charge and sell the property to recover the debt.

Common Uses for Bridging Loans

Breaking a property chain is the most familiar use: you borrow to buy your next home before your current one has sold, using the eventual sale as your exit. Buying at auction is another common scenario, as auction purchases typically require completion within 28 days, a timeline that suits bridging finance but is too fast for most mortgages.

Property refurbishment is a major use case. If a property is unmortgageable in its current condition due to structural issues or lack of basic facilities, a bridging loan provides the capital to carry out works before refinancing onto a residential mortgage or selling on. Developers also use bridging as part of larger development finance arrangements, funding the gap between site purchase and the release of longer-term project funding.

Capital raising against an existing property and short-term business cash flow are additional applications, each with its own exit strategy considerations.

Bridging loans occupy a specific niche in property finance: they are faster and more flexible than most alternatives, but they cost more and carry risks that other products do not.

Pros and Cons of Bridging Loans

The main advantages of bridging finance are speed (completion in as little as 5 to 10 working days), flexibility (lending on property types and in situations where mainstream lenders will not), and the ability to break a property chain or act quickly at auction. Against these sit higher costs (monthly interest rates that translate to 7% to 18% annually), the risk to your property used as security, and reliance on your exit strategy working as planned.

How Bridging Loans Compare to Other Finance

A standard residential mortgage is cheaper, with rates typically between 4% and 6% per year, but it takes 8 to 12 weeks to arrange and requires the property to be in mortgageable condition. If you have the time and the property qualifies, a standard mortgage will almost always be the more cost-effective option.

A secured loan (sometimes called a second-charge mortgage or homeowner loan) can be arranged over longer terms of 5 to 25 years and at lower rates than a bridge, but it requires proof of income and affordability, and takes longer to set up.

Commercial mortgages suit business property purchases where long-term ownership is the goal. They are cheaper over time but far slower to arrange and require extensive financial documentation.

How to Apply: What Lenders Look For

If you decide bridging finance is the right option, lenders will typically assess four things: the value and condition of the security property, the clarity and credibility of your exit strategy, your credit history (bridging lenders are considerably more flexible than high-street banks), and the documents you can provide, including proof of identity, property details, and evidence supporting your exit plan.

A whole-of-market comparison through Money Saving Advisors lets you see rates and terms from specialist bridging lenders side by side, helping you find the right deal for your circumstances without approaching each lender individually.