Bridging loans are a popular short-term finance solution in the UK, used for various purposes such as property purchases, renovations, and auction purchases. These loans help individuals and businesses bridge the financial gap when immediate funding is required, but long-term financing is not yet available.
In this article, we’ll explore multiple bridging loan examples with calculations to give you a clear understanding of how they work and what costs are involved.
What is a Bridging Loan?
A bridging loan is a short-term secured loan designed to provide quick access to funds. Typically, borrowers use these loans to cover gaps in finance, often in the property market. They are usually secured against a property or asset and repaid once a longer-term financing solution is in place—such as a mortgage, sale proceeds, or business refinancing.
Bridging loans can be regulated or unregulated:
- Regulated bridging loans are for residential property purchases where the borrower intends to live in the property.
- Unregulated bridging loans are often utilised for investment or commercial purposes.
- These loans are known for fast approvals—sometimes within days—which makes them ideal for situations requiring immediate funding.
Bridging Loan Examples
Bridging Loan Example 1:
Buying a New Home Before Selling Your Current Property
Scenario:
Lucy and Mark have found their dream home listed at £600,000, but they haven’t sold their current property yet, which is valued at £400,000. They need a bridging loan to buy the new home before selling their existing house.
Loan Breakdown:
- Loan Amount Required: £550,000 (£600,000 purchase price – £50,000 deposit)
- Loan Term: 6 months
- Interest Rate: 0.8% per month
- Exit Strategy: Repayment when they sell their existing home
Calculation:
- Monthly Interest Cost: £4,400 (£550,000 × 0.008)
- Total Interest Over 6 Months: £26,400 (£4,400 × 6)
- Arrangement & Legal Fees: Approx. £5,500
- Total Repayment: £550,000 + £26,400 + £5,500 = £581,900
Once their old property sells, they use the £400,000 proceeds to clear part of the loan and refinance the remaining £181,900 with a mortgage.
Bridging Loan Example 2:
Property Auction Purchase
Scenario:
Daniel, a buy-to-let investor, wants to purchase a £250,000 property at auction. The auction house requires full payment within 28 days, so a bridging loan is his only viable option.
Loan Breakdown:
- Loan Required: £200,000 (£250,000 purchase price – £50,000 deposit)
- Loan Term: 9 months
- Interest Rate: 1% per month
- Exit Strategy: Refinance to a buy-to-let mortgage after refurbishing the property
Calculation:
- Monthly Interest Cost: £2,000 (£200,000 × 0.01)
- Total Interest Over 9 Months: £18,000 (£2,000 × 9)
- Arrangement & Legal Fees: Approx. £4,000
- Total Repayment: £200,000 + £18,000 + £4,000 = £222,000
After renovations, the property’s value increases to £300,000, allowing Daniel to refinance with a 75% LTV mortgage (£225,000), clearing the bridging loan while leaving him with an additional £3,000 in capital.
Bridging Loan Example 3: Business Cash Flow Shortage
Scenario:
Sarah, a property developer, is £500,000 short on funds to complete a development project. She expects a payment of £800,000 from a property sale in 4 months, so she takes out a bridging loan.
Loan Breakdown:
- Loan Required: £500,000
- Loan Term: 4 months
- Interest Rate: 1.2% per month
- Exit Strategy: Repayment from an upcoming property sale
Calculation:
- Monthly Interest Cost: £6,000 (£500,000 × 0.012)
- Total Interest Over 4 Months: £24,000 (£6,000 × 4)
- Arrangement & Legal Fees: Approx. £6,000
- Total Repayment: £500,000 + £24,000 + £6,000 = £530,000
When Sarah receives the £800,000 payment, she clears the bridging loan and retains £270,000 for future projects.
Bridging Loan Example 4: Downsizing to a Smaller Property
Scenario:
John and Susan, a retired couple, are selling their £900,000 home to downsize to a £500,000 bungalow. However, their current home hasn’t sold yet, and they need funds to complete the bungalow purchase.
Loan Breakdown:
- Loan Required: £500,000
- Loan Term: 6 months
- Interest Rate: 0.75% per month
- Exit Strategy: Repayment from the sale of their existing home
Calculation:
- Monthly Interest Cost: £3,750 (£500,000 × 0.0075)
- Total Interest Over 6 Months: £22,500 (£3,750 × 6)
- Arrangement & Legal Fees: Approx. £5,000
- Total Repayment: £500,000 + £22,500 + £5,000 = £527,500
Once their old property sells, they repay the bridging loan, leaving them with £372,500 in extra funds.
Bridging Loan Example 5: Buying Land for Development
Scenario:
Tom, a property developer, wants to purchase land for £400,000 and secure planning permission before obtaining a development loan. Since banks typically require planning approval before lending, he uses a bridging loan.
Loan Breakdown:
- Loan Required: £400,000
- Loan Term: 12 months
- Interest Rate: 1.1% per month
- Exit Strategy: Secure development finance after obtaining planning permission
Calculation:
- Monthly Interest Cost: £4,400 (£400,000 × 0.011)
- Total Interest Over 12 Months: £52,800 (£4,400 × 12)
- Arrangement & Legal Fees: Approx. £7,000
- Total Repayment: £400,000 + £52,800 + £7,000 = £459,800
Once planning is approved, Tom refinances with a development loan, repays the bridging loan, and starts building.
Bringing Loan Example 6: Fixer-Upper Purchase for Flip
Scenario:
Lisa is a property investor who wants to buy a run-down house for £180,000, spend £40,000 on renovations, and sell it for £280,000 within 8 months.
Loan Breakdown:
- Loan Required: £180,000 (purchase price)
- Loan Term: 8 months
- Interest Rate: 1.3% per month
- Exit Strategy: Sell the property after renovations
Calculation:
- Monthly Interest Cost: £2,340 (£180,000 × 0.013)
- Total Interest Over 8 Months: £18,720 (£2,340 × 8)
- Arrangement & Legal Fees: Approx. £3,500
- Total Repayment: £180,000 + £18,720 + £3,500 = £202,220
Lisa sells the property for £280,000, repays the bridging loan, and profits £37,780 after deducting renovation and selling costs.
Key Considerations When Taking a Bridging Loan
- Interest Costs: Bridging loans charge high interest, usually 0.5%–1.5% per month.
- Fees: Lender arrangement fees, valuation fees, and legal costs can add £3,000–£10,000+.
- Exit Strategy: A clear repayment plan is crucial to avoid defaulting.
- Loan-to-Value (LTV): Most lenders offer 65%–75% LTV based on property value.
Bridging Loan Costs & Considerations
While bridging loans provide flexibility, they come with higher interest rates than traditional mortgages. Key factors to consider include:
- Interest Rates: Typically 0.5%–1.5% per month
- Loan Term: Usually 3–12 months
- Exit Strategy: Clear plan for repaying the loan
- Fees: Arrangement fees, valuation fees, and legal costs
Is a Bridging Loan Right for You?
Bridging loans are a powerful tool when used correctly. If you need fast access to capital for a property or business transaction, they could be the ideal solution—provided you have a clear repayment strategy.
For tailored advice, consult a bridging finance specialist to explore your options.
FAQs
How quickly can I get a bridging loan?
Most bridging loans can be arranged within 5 to 14 days, depending on the lender, the complexity of your case, and how quickly the legal and valuation processes are completed. If you’re in a rush, some lenders offer fast-track bridging loans that can be completed in as little as 48 hours—but these often come at a premium cost.
What’s the maximum amount I can borrow?
This depends on the lender and the value of the property you’re using as security. Most lenders offer bridging loans up to 75% loan-to-value (LTV), meaning if your property is worth £500,000, you could potentially borrow up to £375,000. Some lenders may stretch this with additional security, but interest rates will typically be higher.
Do I need a deposit for a bridging loan?
Yes. Most bridging lenders require a minimum deposit of 25%, though some lenders might accept a lower deposit if you have additional assets to secure the loan. The larger your deposit, the lower your borrowing costs.
What is a retained interest bridging loan?
A retained interest bridging loan means that the lender deducts all the interest upfront, so you don’t make monthly payments. Instead, when the loan term ends, you repay the original loan amount in full.
For example, if you borrow £200,000 with £24,000 in interest for 12 months, the lender might give you £176,000 upfront, keeping the £24,000 as pre-paid interest.
Can I get a bridging loan with bad credit?
Yes, but expect higher interest rates. Since bridging loans are secured against property, lenders focus more on the value of your asset and your exit strategy than your credit score. However, if you have severe financial issues (CCJs, defaults, or bankruptcy), only specialist lenders may consider your application.
Are bridging loans regulated?
Some are, some aren’t. Bridging loans for residential purposes (e.g., buying a new home before selling your old one) are regulated by the Financial Conduct Authority (FCA). However, if you’re borrowing for business or investment purposes, the loan will likely be unregulated—meaning fewer consumer protections apply.
What happens if I can’t repay the bridging loan on time?
If you don’t repay on time, your lender will likely charge penalty interest, which can be significantly higher than your standard rate. In worst-case scenarios, if no alternative repayment solution is found, the lender may force the sale of your property to recover their money. To avoid this, always have a clear exit strategy before taking out a bridging loan.
Can I use a bridging loan for property renovations?
Yes! Many investors and homeowners use bridging loans to fund renovation projects before selling or refinancing. Just be aware that some lenders won’t lend against properties deemed uninhabitable (e.g., missing a kitchen or bathroom), so you may need a specialist lender.
Do I need to prove income for a bridging loan?
Not always. Unlike mortgages, bridging loans don’t always require income proof because lenders focus on the exit strategy rather than affordability. However, if you plan to refinance to a mortgage, lenders may check your income to ensure you can qualify for long-term finance.
What are the fees involved in a bridging loan?
Expect to pay several fees, including:
- Broker Fee: If you use a broker, they may charge 0.5%–1%
- Arrangement Fee: 1%–2% of the loan amount
- Valuation Fee: £300–£1,500 depending on property value
- Legal Fees: £500–£3,000 (you pay your legal fees & the lender’s)
- Exit Fee: Some lenders charge 1% if repaid early
Always check the full cost breakdown before proceeding.
What’s the difference between a closed and open bridging loan?
Closed bridging loan – You have a set repayment date, usually when a property sale or refinance is already agreed upon.
Open bridging loan – No fixed repayment date, but repayment is expected within 12 to 24 months. These loans often have higher interest rates because they carry more risk for the lender.
Can I use a bridging loan for commercial property?
Yes. Bridging loans aren’t just for residential properties—they can be used to buy offices, retail units, warehouses, and even land. However, commercial bridging loans often have slightly higher interest rates and stricter lending criteria.
How does the interest on a bridging loan work?
Bridging loan interest is usually charged monthly, not annually. So, if the rate is 1% per month, that’s 12% per year—much higher than a traditional mortgage.
There are three ways interest can be handled:
- Monthly payments – You pay interest each month.
- Rolled-up interest – Interest is added to the loan and repaid at the end.
- Retained interest – The lender deducts interest upfront.
Can I repay a bridging loan early?
Yes, and in most cases, you won’t be penalised for early repayment. In fact, repaying early saves you money on interest, as bridging loan interest is usually charged monthly. However, check your loan agreement for any early exit fees.
Can I use a bridging loan to pay off debts?
Yes, but it depends on the lender and your circumstances. Some people use bridging loans to consolidate short-term debt, but this is risky since bridging loans have high interest rates. If you’re struggling with debt, consider speaking to a financial adviser before using a bridging loan.
What’s the alternative to a bridging loan?
If you need funds but don’t want to use a bridging loan, consider:
- Secured loans – Similar to bridging loans but with longer repayment terms.
- Remortgaging – If you have enough equity, remortgaging could be cheaper.
- Personal loans – Suitable for smaller amounts but harder to qualify for.
- Development finance – If you’re a property developer, this might be a better option.
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