A bridging loan is a short-term, secured loan (typically lasting 1–18 months) used to 'bridge' a financial gap — most commonly when buying a new property before selling an existing one. Interest rates are higher than standard mortgages, and a clear exit strategy is required.
What Is a Bridging Loan?
A bridging loan is a type of short-term secured finance that "bridges" a gap between two transactions. It's secured against property (your current home, the property you're buying, or both) and is designed to be repaid quickly — usually within 1–18 months.
Think of it as temporary finance that lets you act fast when timing is critical.
When Are Bridging Loans Used?
- Buying before selling: You've found your dream home but haven't sold your current property yet
- Auction purchases: You need to complete within 28 days and can't arrange a mortgage that fast
- Chain breaks: A sale falls through and you need quick finance to keep your purchase alive
- Renovation projects: The property is unmortgageable in its current state — bridge the gap while you refurbish
- Downsizing: Buy the smaller property first, then sell the larger one at your own pace
- Business purposes: Releasing equity quickly for a business opportunity
Open vs Closed Bridging Loans
| Type | What It Means | Typical Rate |
|---|---|---|
| Closed | You have a fixed repayment date (e.g., your property sale completes on a set date) | Lower (0.4%–0.8%/month) |
| Open | No fixed repayment date — you'll repay when you can (within the term) | Higher (0.7%–1.5%/month) |
Closed bridging loans are cheaper because the lender has more certainty about when they'll be repaid.
How Much Does a Bridging Loan Cost?
Example: £300,000 Bridging Loan for 6 Months
- • Monthly interest at 0.7%: £2,100/month (£12,600 total)
- • Arrangement fee (1.5%): £4,500
- • Valuation fee: £500–£1,500
- • Legal fees: £1,000–£2,500
- • Total estimated cost: £19,100–£21,100
Interest can be paid monthly, or "rolled up" (added to the loan balance and paid at the end). Rolling up is common — it means no monthly payments, but the total cost is higher.
The Risks You Need to Know
- High cost: Interest is significantly more expensive than a standard mortgage
- Property at risk: The loan is secured against your property — if you can't repay, you could lose it
- Exit strategy failure: If your property doesn't sell in time, costs escalate rapidly
- Double charges: You may be paying your existing mortgage AND bridging loan interest simultaneously
- Hidden fees: Check for exit fees, extension fees, and admin charges
Alternatives to Bridging Loans
Before committing to a bridging loan, consider whether these alternatives might work:
- Port your existing mortgage to the new property
- Negotiate a longer completion with the seller to align timings
- Sell first, rent temporarily — avoids bridging costs entirely
- Family loan — short-term borrowing from family (put it in writing)
- Let to Buy: Let your current home and use rental income to support a new mortgage
Get Expert Advice Before You Decide
Bridging loans can be the right solution in specific situations, but they're not suitable for everyone. Our fee-free advisors can help you understand whether a bridging loan makes sense — or whether a simpler, cheaper alternative exists.
Frequently Asked Questions
- How much does a bridging loan cost?
- Interest rates are typically 0.4%–1.5% per month (roughly 5%–18% per year). Plus arrangement fees of 1–2% of the loan, valuation fees, and legal fees. They're significantly more expensive than standard mortgages.
- How long can you have a bridging loan for?
- Typically 1–18 months, though some lenders offer up to 24 months. They're designed to be short-term — if you need finance for longer, a standard mortgage or development finance may be more suitable.
- Can I get a bridging loan with bad credit?
- It's possible but harder. Some specialist lenders consider applications with adverse credit, but you'll pay higher rates. The strength of your exit strategy matters more than with standard mortgages.
- What is an exit strategy for a bridging loan?
- It's your plan for repaying the loan. Common exits include: selling your current property, remortgaging to a standard mortgage, selling the bridged property, or using other funds. Lenders won't approve without a credible exit.
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