Bridging loans explained

General guidance, not a personal recommendation. Lender criteria, insurance terms and costs depend on the product and your circumstances. Numerical examples are illustrations unless expressly identified as an individual quote. Check current terms with your adviser and tax or legal points with the relevant specialist.

A bridging loan is short-term property finance, typically 1-18 months, used to bridge a gap in another transaction. The main use cases: buying at auction, breaking a property chain, funding a renovation before remortgage, or business-purpose borrowing against property.

Bridging is fast and flexible. It's also expensive, usually 0.65-1.2% per month interest plus fees. Used correctly it solves specific problems other finance can't; used incorrectly it can become very painful very quickly. Here's how to think about it properly.

Common use cases

Auction purchases

Auction properties typically complete in 28 days. Standard mortgages take 6-12 weeks. Bridging finance steps in to complete on time, then you refinance onto a standard mortgage within 6-9 months.

Chain breaks

Buyer pulls out of your onward sale but you've already exchanged on your purchase. Bridging lets you complete anyway while you re-market your sale. Pricey but saves losing a dream home.

Refurbishment before refinance

Property bought in uninhabitable or unmortgageable condition (no kitchen, no bathroom, structural work needed). Bridge to complete, refurbish in 3-6 months, then refinance onto a standard mortgage at the renovated value.

Break in mortgage offer

Your existing mortgage offer is about to expire and a small issue is delaying completion. Bridge in, complete, then remortgage immediately.

Business or commercial purpose

Director using equity in personal or commercial property to inject working capital, fund a property investment, or similar time-sensitive business need. Unregulated bridging is often faster than business lending.

Below-market-value purchase

Buying a property at significant discount to market value (BMV). Bridging lets you complete quickly, then refinance at the real value, which can effectively return your deposit and allow repeated purchases.

What bridging actually costs

A bridging loan has three main cost components:

1. Monthly interest: Typically 0.65-1.2% per month (~8-15% annualised). Interest is usually rolled up rather than paid monthly, meaning it compounds onto the loan balance.
2. Arrangement fee: 1.5-2% of loan size, often added to loan.
3. Exit fee: Some lenders charge 1% on exit, many don't. Compare carefully.

On top: legal fees (both sides), valuation and often a commitment fee. Major Money Matters charges no client broker, advice or arrangement fee for mortgage advice. The client fee is £0.

Worked example. £200,000 bridge for 9 months at 0.85% per month with 2% arrangement fee:
• Arrangement fee: £4,000 (added to loan)
• Interest over 9 months: ~£15,600 (rolls up)
• Total repayable: ~£219,600
Add valuation £500, legal fees £2,000 both sides, Major Money Matters client fee £0 for mortgage advice. Total cost of a 9-month bridge: ~£22,000 on a £200k loan.

Bridging only makes sense when the alternative, losing the opportunity, paying SDLT surcharge avoidably, or missing a specific deal, costs more than the bridging premium. We always run the full numbers before recommending.

Exit strategy is everything

The single most important thing about bridging: how you repay it. Lenders require a credible exit plan. The three standard exits:

• Refinance to mortgage. Most common exit. Bridge completes the purchase, then within 3-9 months a standard mortgage repays the bridge. Requires that the property will be mortgageable by exit date, which means being habitable, valued reasonably, and you passing affordability.
• Sale of the property. Buy-refurb-flip strategies. Risky if the market turns or the refurb overruns; lenders scrutinise sale strategy carefully.
• Sale of another property. Chain-break bridging, your onward sale completes and repays the bridge. Bridge amount is often limited to what we're confident the property will sell for.

If the exit plan isn't clearly credible, a good bridging lender (and a good broker) will say no. Most bridging failures come from weak exit plans, "I'll sort it later" is how people end up paying 12-18% compound interest for 24 months.