Bridging Loan Guide | Everything You Need to Know About Bridging Finance & Equity. Are you considering a bridging loan but unsure how it works, when to use one, or what the risks and benefits might be? Bridging finance is a short-term funding solution designed to “bridge the gap” between buying and selling, or to unlock equity quickly when timing is critical.
Whether you’re moving home, purchasing an investment property, funding a renovation, or seizing a time-sensitive opportunity, a bridging loan can provide fast access to funds when traditional mortgage finance isn’t suitable or available.
In this guide, we’ll cover everything you need to know about bridging finance, from how it works and the different types of loans available to eligibility criteria, costs, and common uses. By the end, you’ll have a clear picture of whether bridging finance could be the right option for you.
What is a Bridging Loan?
A bridging loan is a short-term loan designed to ‘bridge’ a financial gap, typically between the sale of one property and the purchase of another. It’s often used when fast access to capital is required and conventional mortgages are too slow or inflexible.
| Feature | Description |
|---|---|
| Loan Term | Usually 1 to 18 months (can be up to 36 months in some cases) |
| Loan Purpose | To bridge the gap between two transactions or fund short-term needs |
| Secured Against | Property or land (can be residential, commercial, or mixed-use) |
| Speed of Access | Funds can often be released within 5-10 working days |
| Repayment Method | Repaid in full at the end of the term, often via sale or refinance |
When is the Right Time to Use a Bridging Loan?
Bridging loans are NOT for long-term borrowing, but they can be extremely effective in certain situations.
| Scenario | Why a Bridging Loan Works |
|---|---|
| Buying before selling | Secure your new home before your current property sells |
| Auction purchases | Quick funding is needed within tight deadlines |
| Property chain breaks | Prevent a chain collapse from derailing your move |
| Property renovations | Finance refurbishments before refinancing onto a mortgage |
| Land purchases or development | Buy land quickly or fund a development project |
| Urgent business or tax liabilities | Release capital quickly using property as security |
Common Myths About Bridging Loans – Busted!
| Myth | Truth |
|---|---|
| “Bridging loans are only for property developers” | Not true — they’re used by homeowners, landlords, and businesses too |
| “They’re only for people with bad credit” | Wrong — many clients have excellent credit and just need speed |
| “Bridging loans are always expensive” | Rates have become far more competitive — especially for low-risk cases |
| “It’s hard to qualify for a bridging loan” | If you have an exit plan and security, approval can be straightforward |
| “Bridging lenders aren’t regulated” | The FCA regulates many; unregulated options also exist for business deals. |
Pros and Cons of Bridging Finance
| Pros | Cons |
|---|---|
| Fast access to funds (often within days) | Higher interest rates than traditional mortgages |
| Flexible lending criteria | Fees can be significant (arrangement, legal, valuation, etc.) |
| Can secure deals others can’t | Must have a clear exit strategy (sale, refinance, etc.) |
| Useful for complex property or income situations | If the exit fails, you may need to refinance or sell the property |
Types of Bridging Loans
| Type | Description |
|---|---|
| Open Bridging Loan | No fixed repayment date; more flexibility but may be seen as riskier |
| Closed Bridging Loan | Fixed repayment date (e.g., when contracts are exchanged) — usually cheaper |
| First Charge | The lender is first in line if the property is repossessed |
| Second Charge | Lender ranks behind the main mortgage provider |
| Regulated Bridging | FCA-regulated; for properties you or family intend to live in |
| Unregulated Bridging | Not FCA-regulated; for business or investment purposes |
What Lenders Look For
To approve a bridging loan, lenders typically assess:
Value of the security (property or land)
Loan-to-Value (LTV) – usually up to 75%
Your exit strategy (e.g. sale or remortgage plan)
Creditworthiness (not always critical)
Property type and location
Borrowing amount and term needed
Example Bridging Loan Calculation
| Item | Amount |
|---|---|
| Property Value | £400,000 |
| Loan Required (70% LTV) | £280,000 |
| Interest Rate (monthly) | 0.9% |
| Loan Term | 6 months |
| Interest | £15,120 |
| Arrangement Fee (2%) | £5,600 |
| Valuation/Legal Fees | ~£1,500 |
| Total Repayment | ~£302,220 |
(Interest may be rolled up or deducted from the loan amount upfront)
Exit Strategies: How You Pay It Back
Bridging loans must be repaid in full at the end of the term, so having a clear exit strategy is crucial.
| Exit Strategy | Explanation |
|---|---|
| Sale of current or purchased property | Common option when selling one to fund another |
| Refinance to longer-term mortgage | After refurbishments or improved financial position |
| Inheritance or investment maturing | If funds are known to be arriving in a set time frame |
| Business income | If borrowing is for short-term business use |
Regulated vs Unregulated Bridging Loans
| Feature | Regulated Bridging Loan | Unregulated Bridging Loan |
|---|---|---|
| FCA Protection | Yes | No |
| Use Case | Purchase/refinance of residential homes (your home) | Buy-to-let, development, land, business use |
| Who Can Use It | Individuals buying or refinancing homes | Companies, investors, developers |
| Application Process | More documentation & suitability checks | Often faster and more flexible |
Should You Get Advice?
Absolutely. Bridging loans can be an excellent tool, but they’re not suitable for every borrower. A qualified adviser can:
Help determine if bridging is right for you
Explain costs clearly
Help prepare your exit plan
Access lenders are not available directly to consumers
Speed up approval by handling paperwork
People Also Browse These Guides
FAQ: Bridging Loan Guide
| Question | Answer |
|---|---|
| What is a bridging loan? | A bridging loan is a short-term finance option that helps you bridge a gap between buying a new property and selling your existing one. It is also used for quick purchases, refurbishments, or auction properties. |
| How does a bridging loan work? | It provides fast funding that you repay within a short period, typically between 3 to 18 months. When your property sells or you secure long-term finance, you repay the loan in full along with interest. |
| Who can apply for a bridging loan? | Individuals, landlords, developers, and limited companies can apply. You must have a clear repayment plan, such as a property sale or refinance, and sufficient equity in your asset. |
| What are the main uses of bridging finance? | Common uses include property purchases at auction, renovation or conversion projects, funding property chains, or releasing capital quickly for investment opportunities. |
| How fast can I get a bridging loan? | Bridging loans can often complete within a few days to two weeks, depending on the complexity of your case and the speed of your valuation and legal process. |
| What interest rates apply to bridging loans? | Rates vary depending on loan size, security, and experience. Typical monthly rates start from around 0.4% to 1.5%. Interest can be rolled up or paid monthly. |
| Do I need a deposit for a bridging loan? | Yes, lenders usually require a minimum of 25% to 30% equity in the property as security. The exact amount depends on the lender’s loan-to-value criteria. |
| Can I use a bridging loan for auction purchases? | Yes, bridging finance is ideal for auctions because it can be arranged quickly, allowing you to meet strict completion deadlines. |
| What are the repayment options? | You can repay the loan once your property sells or when you refinance to a standard mortgage. Some lenders also allow early repayment with reduced fees. |
| What are the risks of bridging finance? | The main risk is failing to repay within the agreed term, which could lead to additional costs or repossession. You should always have a clear and realistic exit strategy. |
| Is bridging finance regulated? | Bridging loans for residential property used by the borrower are regulated by the Financial Conduct Authority (FCA). Business or investment purposes are typically unregulated. |
| Why use a broker for a bridging loan? | A broker compares lenders, negotiates rates, and ensures your application meets all lender criteria. At Connect Experts, we work with trusted UK bridging lenders to help you secure the right deal. |