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.