Borrower Tips
The UK bridging market is currently estimated to be worth a hefty £8.4 billion, as more property investors take advantage of the speed and flexibility of bridging finance.
Whether used as temporary liquidity or funding an entire property project, bridging finance is now a go-to financial solution across the industry.
Simply put, bridging loans are short-term secured loans, paid back with interest and commonly used in property transactions.
This guide will help you to better understand how bridging loans work, when they can be used and their pros and cons. Enabling you to explore all the finance options available for your next project and navigate the loans process smoothly.
A bridging loan is a short-term loan, typically up to 24 months, that can be used to alleviate temporary funding gaps between buying and selling/refinancing property and land. A key feature of bridging loans is the speed at which they can be arranged; in some circumstances, it can take just a matter of days.
Along with plugging temporary funding gaps, bridging loans can also finance quick turnaround property projects, such as ‘fix and flip’ projects, fund land acquisitions, or facilitate a development exit.
Bridging loans are secured against the property being purchased and/or additional assets, and in the event of a default, the bridging loan lender can repossess these assets.
Unlike homeowner mortgages, bridging loans are assessed against the asset values, the strength of the project/investment and the exit strategy (how the loan is repaid), rather than income and affordability.
The process for securing a bridging loan:
There is no specific typical amount for bridging loans. Lenders on the Brickflow platform offer bridging finance across a vast scale, stretching from £25,000 up to £100 million.
The loan amount will depend on the value of the asset/assets, the amount of deposit input available from the borrower and the lender’s LTV (Loan to Value) caps – most bridging lenders offer a maximum of 75% LTV on a gross loan basis.
As mentioned, bridging loans are primarily assessed on the basis of the exit strategy and the value of the securing assets. However, there are still certain criteria that borrowers need to meet in order to secure a loan.
Basic criteria include:
Additional criteria include:
Loan approval is always down to lender discretion, so even if all criteria are met, there are other factors that can influence a lender’s decision, including:
Every lender has its own specific criteria, which are in addition to what’s mentioned above. Filtering out lenders that can’t meet a borrower’s bridging loan requirements can be time-consuming.
At Brickflow, our software allows you to instantly filter out lenders based on eligibility at the start of the process, so time isn’t wasted submitting applications to inappropriate lenders. Explained more clearly, our tool is the fastest, simplest and most accurate way to understand more about the finances available for your situation.
Read more in Who Can Get a Bridging Loan? Eligibility and Criteria.
The typical loan term for bridging finance is 1 – 24 months for unregulated bridging loans, and up to 12 months for regulated bridging loans. (Regulated bridging loans, explained in short, are where the loan is secured against the borrower’s or their immediate family’s main home or a property that they will use as their home in the future).
On Brickflow, some lenders offer terms up to 30 or 60 months, though these are less common and only apply in certain circumstances. Below we covered off closed and open bridging loans:
Early repayment charges rarely apply in bridging finance unless exiting the loan before the minimum agreed term. For example, lenders might agree to a minimum 3 or 6-month term before exiting without charges.
Bridging loans are particularly useful in scenarios such as:
Often, bridging loans are explained as a temporary funding solution in between buying and selling property. However, they can be far more pliable and useful for a myriad of property transactions.
Bridging loans explained by expert brokers can help you understand how you can apply bridging finance to your situation. Our broker directory can help you find a broker in your area.
The costs and fees of bridging loans explained simply are:
Typically, interest is charged daily, so you only pay for the period you have the loan. Some lenders charge monthly, so if you exit part way through the month, you will pay a full month’s interest (it’s worth ascertaining how the lender charges interest at the outset, as avoiding this type of interest can save you thousands of pounds).
Interest can either be:
Lenders charge a fee for arranging the loan to cover administrative costs involved in processing an application, such as performing credit searches.
The cost of a bridging loan arrangement fee is usually up to 2% of the net or gross loan. Brickflow’s real-time bridging loan calculator tells you exactly what the arrangement fees are on each loan option.
Like interest, they are typically included in the total loan and deducted from the gross loan or paid at the end of the term when the loan is settled.
Some lenders charge a fee when the loan is repaid, but as previously mentioned, this is not common in bridging finance. Most lenders on the Brickflow platform do not charge exit fees. Instead, there may be a minimum term, typically between 1 and 6 months, and exiting before this period would incur a charge.
Bridging loans explained without covering the potential downsides can’t help you make informed decisions on your next finance solution. In addition to understanding the benefits and how to use bridging finance, there are associated risks to be aware of.
Below is an overview of the upsides and downsides involved, but you can read more in-depth about the pros and cons of bridging loans here.
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Pros |
Cons |
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Creates market opportunities, such as buying at auction |
Short-term, there requiring a reliable exit plan |
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Can complete quickly, whilst traditional mortgages can take 8+ weeks |
Higher interest rates and fees compared to traditional borrowing |
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Rolled-up interest, either deducted upfront or paid on loan redemption, beneficial for borrowers with low disposable income |
Compounded interest, so interest is paid on interest |
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Flexible and typically without exit fees or early repayment charges (though a minimum loan term may apply) |
Higher default interest rates if the loan is not repaid by the end of the term |
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Available for residential & commercial properties, as well as land with or without planning permission |
Requires a personal guarantee (if borrowing through a corporate entity), leading to personal liability for the debt and potential repossession of assets in case of default |
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Unregulated options provide lender flexibility and faster arrangement, whilst regulated bridging enables borrowing for your own home. |
Regulated bridging can take as long as a residential mortgage to arrange due to more stringent criteria and bureaucracy |
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Applications focus on property value, project viability, and securing assets, so poor credit, low income, or cash flow issues are less of a barrier to approval |
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Facilitates the purchase of properties that don’t qualify for traditional mortgages |
Unless you know the costs of a bridging loan before plunging into your next project, you can’t know if it’s the right choice for you.
Brickflows bridging loan calculator is the fastest way to determine actual borrowing costs for your project. You can model your deals instantly to see if they stack and are worth pursuing.
Bridging loans explained more clearly by a specialist bridging broker can also help you understand what’s right for your circumstances and offer a full picture of what type of loan is available to you.
Other financing options that you might want to consider include:
Once you’re sure a bridging loan is the right option, you’ll begin the loan search and application process:
Brickflow’s bridging comparison tool offers the quickest, most efficient way to shop the full breadth of the bridging loan market.
Knowing your borrowing costs up-front is game-changing for any property investor or developer, as it prevents you from pursuing projects with a profit margin that is too small or altogether unviable.
Brickflow’s real-time bridging loan calculator delivers real-time loans from a network of trusted lenders, from banks, non-banks and specialist lenders.
Our award-winning tech, combined with a specialist broker, can help you to secure the best loan on the market quickly and easily.
Now that you know all about bridging finance, it’s easier to understand how they work and how they could benefit your next property investment. We’ve covered how much you can borrow, circumstances where bridging loans are particularly useful, criteria and the upsides and downsides of bridging.
To determine what bridging loans are available for your next project, run your numbers though Brickflow’s bridging loan comparison tool. It takes seconds and could save you tens to hundreds of thousands of pounds.
For bridging loans explained in more detail, you can read our other articles:
Interest rates for bridging loans vary depending on several factors:
The quickest and most accurate way to find out how much interest you will pay on a bridging loan is to run your numbers through Brickflow’s live bridging loan calculator. It takes seconds and enables you to see actual interest rates and charges on loans from across the market.
Discover the costs of bridging loans in our detailed guide. Learn about interest rates, fees, and factors affecting the overall cost of your loan.
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