A bridging loan is a short-term secured loan, usually 6 to 18 months in duration, used to finance property transactions where there’s a gap between outflow and inflow. The most common use is funding the purchase of a new property before the sale of an existing one completes — hence the name.
Bridging is expensive, secured against property, and has risks that long-term mortgages don’t. It’s a tool for specific situations, not a general financing option.
Typical bridging-loan uses
- Breaking a property chain — buying your new home before your current one sells.
- Buying at auction — traditional auction completions require funds within 28 days, faster than mortgages typically allow.
- Buying an unmortgageable property — short lease, non-standard construction, or major refurbishment needed before mortgaging is possible.
- Refurbishment-and-resale — developers and investors often bridge to fund renovations, then refinance or sell.
- Probate purchases — before inheritance funds are released.
- Time-critical business needs — tax bills, opportunity purchases.
How bridging loans work
- Secured against property — the loan uses the property (existing or being purchased) as collateral.
- Short term — typical durations are 3–18 months; some lenders offer up to 24.
- Interest rates — currently roughly 0.5%–1.5% per month (6%–18% per year equivalent). Significantly higher than standard mortgages.
- Arrangement fees — typically 1–2% of the loan.
- Exit strategy required — lenders require a clear plan for how the loan will be repaid: sale of another property, refinancing onto a standard mortgage, or other specified source.
Types of bridging
- Closed bridge — repayment date and source are fixed and certain (e.g., contracts already exchanged on the selling property). Lowest rates.
- Open bridge — repayment date flexible; exit strategy plausible but not certain. Higher rates and deposits typically required.
- First charge — bridging lender has primary security. Cheaper.
- Second charge — bridging sits behind an existing mortgage. More expensive.
Risks of bridging
- Cost — at 1% per month, a £300,000 bridge held for 12 months costs £36,000 in interest plus fees. This is often the reason bridging is better avoided if alternatives exist.
- Extension — if the expected sale doesn’t complete, most bridges can be extended, but at increasing rates and with potential penalties.
- Repossession — if the loan isn’t repaid at the end of its term, the lender can repossess the securing property.
- Regulatory status — bridging on your own home is FCA-regulated; bridging on investment/buy-to-let property often isn’t, reducing consumer protections.
Bridging loan vs selling to a cash buyer
Sellers facing a chain break sometimes consider taking out a bridging loan to continue their onward purchase while they market their current home. This can work — but it’s a calculated bet that the original property will sell within the bridge term at the price anticipated, and that the cost of the bridge is less than the discount a cash buyer would take.
Rough maths on a £400,000 property:
- Bridging option: 12-month closed bridge at 1% per month = £48,000 interest, plus £4,000 arrangement fees. Total cost ~£52,000 if the sale completes on time.
- Cash sale option: Accept 88% of market value = £352,000 (£48,000 “discount”). Completes in 14 days. No carrying costs.
The numbers are often closer than sellers expect. Where the open market is uncertain or the chain is fragile, selling to a cash buyer can be the more financially rational move.
Related
- Cash buyer — the alternative to bridging when a sale needs to happen fast.
- Property chain — the problem bridging is most often used to solve.
- Quick house sale company — the industry category that includes many cash buyers.