Buying a house often comes with timing challenges. You might spot your perfect home before selling your current property, or find an amazing deal at auction that needs quick completion.
Perhaps you’ve discovered a property that needs work before a standard mortgage lender will consider it.
These situations can feel like facing a closed door – but bridging loans offer a way through.
A bridging loan lets you borrow money secured against property, usually for up to 12 months. Think of it as a short-term solution that helps you buy a new property before your longer-term funding is in place.
Let’s explore how bridging finance works and if it could be right for your situation.
What is a Bridging Loan for Property Purchase?
A bridging loan is short-term lending secured against property.
Unlike regular mortgages that run for 25+ years, these loans last just a few months up to a year.
You might use one to buy a new house while waiting for your current home to sell, giving you the freedom to move at your own pace.
Think of a bridging loan as covering a temporary gap in your finances.
You’re borrowing money for a brief period, usually until you either sell a property or secure a long-term mortgage.
The key difference from standard mortgages? You don’t make monthly repayments. Instead, you’ll often roll up the interest and pay everything back when you repay the loan.
These loans come in two main forms.
Open bridging loans suit situations where you don’t have a fixed repayment date – like when you’re still marketing your current home for sale. Closed bridging loans work better when you know exactly when you’ll repay, such as when you’ve exchanged contracts on your property sale but haven’t completed yet.
The main benefit is speed
While mortgages can take months to set up, a bridging loan can complete in a matter of days.
This makes them perfect for auction purchases or when you need to move quickly to secure a property. However, this speed and flexibility comes with higher interest rates and some upfront fees.
Your property serves as security for the loan – either the one you’re buying, your current home, or sometimes both. This means your property could be at risk if you can’t repay the loan, so having a clear plan for repayment (known as your exit strategy) is essential.
Common Scenarios for Using Property Bridging Loans
Let’s look at real situations where bridging loans help UK property buyers unlock opportunities.
Whether you’re moving home, buying at auction, or investing in property, understanding these scenarios will help you see if bridging finance suits your needs.
Moving Home Before Selling Your Current Property
You’ve found your perfect home in a sought-after area of London, but your current house hasn’t sold yet. Without a bridging loan, you might lose out to another buyer. A bridge loan lets you move forward with your purchase while giving you time to sell your current home at the right price.
Property chains can be frustrating – one broken link and everyone’s plans fall apart.
A chain break bridging loan helps you break free from these situations. For example, if your buyers pull out at the last minute, you won’t need to withdraw your offer on your new home. Instead, you can use a bridging loan to complete your purchase and stay in control of your moving timeline.
Read more: How to Use Bridging Finance to Break a Property Chain
Buying at Property Auctions
Auction properties often come with attractive price tags, but they need quick action. When you win a bid, you’ll need to pay 10% immediately and complete within 28 days.
Most mortgage lenders can’t work this fast, but bridging loans can.
Many auction properties need work before mortgage lenders will consider them. Missing kitchens, damaged roofs, or non-standard construction – these issues make properties ‘unmortgageable’.
Auction bridging loans fill this gap, letting you buy and improve the property before moving to longer-term finance.
Property Investment Opportunities
Smart investors use bridging loans to act fast on below-market-value properties.
When sellers need a quick sale, having ready finance means you can move quickly and secure a good deal. A bridge loan gives you this speed advantage.
Light refurbishment projects offer great potential for adding value.
You might spot a property needing updating – perhaps new bathrooms, a modern kitchen, or general decoration. A bridging loan can cover both purchase and renovation costs, letting you transform an dated property into a desirable home.
Some properties don’t qualify for standard mortgages due to their condition.
By using a bridging loan, you can buy the property, carry out essential improvements, and then refinance onto a standard mortgage once it meets lender requirements. This approach opens up opportunities that other buyers might miss.
Let’s talk bridging loans!
How Property Bridging Loans Work
Let’s look at the mechanics of bridging loans so you can understand what you’re signing up for.
Bridging loans work differently from standard mortgages, and knowing these differences helps you make better borrowing decisions.
Property Security
When you take out a bridging loan, you’ll need to offer one or more properties as security. This could be the house you’re buying, your current home, or both. The amount you can borrow depends on the value of this security – most lenders will offer between 65-75% of the property’s value.
Read more: What is a Bridging Loan Secured Against?
First and Second Charges Explained
Bridging loans can be secured as either a first or second charge on your property. A first charge means the bridging lender has first claim on the property if you can’t repay the loan. This happens when you own a property outright or when the bridging loan pays off any existing mortgage.
A second charge bridge loan works differently.
If you already have a mortgage, the bridging loan sits behind it as a second charge.
Your mortgage lender keeps first claim on the property, while the bridging lender takes second position. Second charge loans come with slightly higher interest rates to reflect this increased risk.
Loan Terms and Repayment
Most bridging loans run for 3-12 months, though some lenders offer slightly longer terms.
You’ll agree on the length of the loan at the start, based on your plans for repaying it. For example, if you’re waiting for your house to sell, you might arrange a 6-month term with the option to extend if needed.
Interest Payment Options
You have three main ways to handle the interest on a bridging loan:
- Monthly payments work just like a mortgage – you pay the interest each month. This suits borrowers with good cash flow who want to keep their final repayment amount down.
- Rolled-up interest adds up over the loan term and gets paid along with the loan amount at the end. This helps if you’d rather not make monthly payments, though it means you’ll need more money to clear the loan.
- Retained interest deducts the expected interest from your loan amount upfront. While this reduces how much you receive initially, it gives you certainty about your final repayment figure.
The best choice depends on your circumstances.
If you’re buying a property to renovate and sell, rolled-up interest might work best since you won’t have rental income to cover monthly payments. For a straightforward chain break, monthly payments could make more sense.
Who Can Get a Bridging Loan for Property?
You’ll find bridging loans very accessible as lenders focus more on your property and exit strategy than your personal circumstances.
However, there are still key requirements you’ll need to meet.
Property Requirements
Bridging lenders consider a wide range of properties.
Residential homes, whether ready to move into or needing work, are commonly accepted. You can also secure loans against commercial buildings, mixed-use properties, and even land with or without planning permission.
The property’s condition affects how much you can borrow – a well-maintained house might let you borrow up to 75% of its value, while a property needing major work might be limited to 65%.
Read more: What is a Bridging Loan Secured Against?
Deposit and Funding
You’ll need a deposit of at least 25% for most bridging loans, though some lenders ask for 30-40%.
This deposit can come from your savings, equity in another property, or other assets. For auction purchases, remember you’ll need to pay a 10% cash deposit when the hammer falls, with the rest due within 28 days.
Read more: Do You Need a Deposit for a Bridging Loan?
The All-Important Exit Strategy
Your exit strategy – how you plan to repay the loan – matters more than anything else. Lenders want to see a clear, realistic plan.
Common exit strategies include:
- Selling your current property
- Refinancing to a standard mortgage
- Selling the property you’re buying after renovation
- Using an inheritance or other incoming funds
You’ll need evidence to back up your exit strategy. This might be proof that your current house is under offer, or a mortgage agreement in principle for refinancing.
Read more: How Do You Pay Back a Bridging Loan?
Credit History and Income
While bridging lenders look more at your property and exit strategy than your credit score, they’ll still check your credit history.
Past credit issues won’t automatically rule you out, especially if they’re explained and your exit strategy is solid.
Income requirements are more flexible than with traditional mortgages.
If you’re not making monthly interest payments, lenders care more about your exit strategy than your monthly income. However, if you plan to make monthly payments, you’ll need to show you can afford them.
Read more: Do You Need a Good Credit Score for a Bridging Loan?
Experience and Property Plans
First-time buyers and investors can get bridging loans, though some lenders prefer borrowers with property experience. If you’re planning major renovations, lenders might want to see evidence that you can manage the project, either personally or through contractors.
Read more: Understanding Bridging Loan Criteria & Eligibility
Costs and Considerations
Before applying for a bridging loan, you’ll need to understand all the costs involved and what to consider.
While bridging loans offer speed and flexibility, they come with higher costs than standard mortgages, so careful planning is essential.
Understanding the Fee Structure
Several fees make up the total cost of your bridging loan.
You’ll pay an arrangement fee to set up the loan – this is usually 2% of the loan amount. Legal fees cover both your solicitor and the lender’s legal work, while valuation fees pay for a professional assessment of your property.
Some lenders charge exit fees when you repay the loan.
These might be a fixed amount or a percentage of the loan. Ask about any early repayment charges too – many bridging lenders don’t charge these, giving you the flexibility to repay as soon as you can.
Bridging lenders charge monthly interest. You might have the option to pay this monthly, roll it up into the final payment, or have it deducted from your loan at the start.
Each option affects your cash flow differently, so consider what works best for your situation.
Security and Risk Factors
Your property acts as security for the loan, meaning you could lose it if you can’t repay. This risk increases if you’re using your home as security. When using multiple properties as security, remember all of them are at risk if things go wrong.
Market conditions can affect your exit strategy.
House prices might fall, making it harder to sell at your expected price. Renovation costs could rise above estimates, or project delays might mean paying interest for longer than planned. Build some flexibility into your budget to cover these possibilities.
Read more: A Guide to Cross Charge Bridging Loans
Planning Your Exit
A solid exit strategy reduces risk for both you and the lender. Be realistic about timelines – if you’re selling a property, factor in current market conditions. For refinancing exits, start talking to mortgage lenders early to understand their requirements.
Have a backup plan too.
If your main exit strategy falls through, what’s your Plan B? This might mean having savings set aside, other assets you could sell, or alternative refinancing options.
Getting Professional Help
Working with an experienced broker helps you understand the full cost implications and find the most suitable loan for your needs. They’ll explain all charges upfront and help structure your loan to minimise costs while meeting your requirements.
The Application Process
Getting a bridging loan is a quick process, but there are still several key stages to complete.
Understanding these will help you to plan your property purchase and avoid unnecessary delays.
First Steps
Your application starts with an initial discussion about your needs and circumstances. A broker can assess your situation and search the market for suitable options. They’ll want to know about the property you’re buying, your exit strategy, and any time pressures you face.
With this information, your broker can secure an agreement in principle – often within hours. This gives you a clear idea of how much you can borrow and the likely costs, helping you move forward with confidence.
Property Valuation
Once you’ve chosen a lender, they’ll need a valuation of any properties being used as security.
A qualified surveyor will inspect the property and provide a report on its value and condition. For properties needing work, they’ll also assess the potential value after improvements.
The valuation usually takes 3-5 working days to arrange and complete. Some lenders might accept desktop valuations or AVMs for straight-forward cases, speeding up the process even more.
Read more: What is an Automated Valuation Model (AVM)?
Legal Work
Your solicitor handles the legal aspects of your bridging loan alongside the property purchase. They’ll check the property’s title, carry out searches, and arrange the loan security. You’ll need a solicitor with experience in bridging finance – they work differently from standard mortgages.
The lender’s solicitors will also review everything.
They’ll check the security arrangements and make sure all legal requirements are met. Clear communication between all parties helps keep things moving.
Read more: Do You Need a Solicitor for a Bridging Loan?
Moving to Completion
With valuation and legal work complete, your loan moves to the final stages. Your lender’s underwriters review everything one last time. If they’re happy, they’ll issue the loan offer for you to sign.
Once you’ve accepted the offer, funds can be released quickly – often within 24-48 hours.
The whole process from application to completion usually takes 1-3 weeks, though it can be faster or slower depending on your circumstances.
Speeding Things Up
Want to complete more quickly
Here’s what helps:
- Have all your documents ready at the start
- Choose solicitors familiar with bridging finance
- Ask for an AVM valuation
- Keep your LTV below 70%
- Respond promptly to any requests for information
- Keep in regular contact with your broker
Remember, bridging loans can complete much faster than standard mortgages. A good broker will keep everything on track and handle any issues that arise, making sure you get your funds when you need them.
How a Broker Can Help
Working with a broker makes a real difference when arranging bridging finance.
Bridging loans work differently from other mortgage types, and having someone with specialist knowledge on your side proves invaluable.
Market Access
A good broker maintains relationships with a wide range of lenders, from high-street banks to specialist bridging providers. (we have over 250 lenders)
Many of these lenders only work through brokers, so you won’t find them yourself. This broader choice helps you find the right loan for your situation at the best possible price.
Some brokers, like Bridging Finance London, can also connect you with private lenders and individuals who lend their own funds. These options often provide more flexibility than mainstream lenders, especially for unusual properties or complex situations.
Handling Complex Cases
Every property purchase brings its own challenges. You might need to complete quickly, have a complicated exit strategy, or want to buy an unusual property. Brokers deal with these situations daily and know which lenders will consider your case.
For example, if you’re buying a property to renovate, your broker will know which lenders accept heavy refurbishment cases. If you’re purchasing at auction, they’ll focus on lenders who can meet tight deadlines.
Speeding Up Your Application
Time often matters when you need bridging finance. A broker speeds things up by:
- Submitting your application to the right lender first time
- Packaging your case properly with all required information
- Having direct access to lenders’ underwriters
- Pushing things along when needed
They’ll also spot potential problems early and help you solve them before they cause delays.
Planning Your Exit
Your exit strategy – how you’ll repay the loan – needs careful planning.
A broker helps you think through all aspects of your exit, making sure it’s realistic and acceptable to lenders. They might suggest backup options you hadn’t considered.
If you’re planning to refinance onto a standard mortgage, your broker can check the likelihood of getting that mortgage approved. This helps avoid situations where you might struggle to exit the bridging loan.
Practical Support
Throughout your application, your broker acts as your advocate. They explain things clearly, answer your questions, and keep you updated on progress. If issues arise, they’ll work with lenders to find solutions and keep your purchase on track.
Your Next Steps
If you’re thinking about using a bridging loan to buy a house, taking the right steps now will help your purchase go smoothly.
Start by getting your information together.
You’ll need details about the property you want to buy, any property you’ll use as security, and your plans for repaying the loan. Having this ready helps lenders assess your application quickly.
Consider your timeline carefully.
- When do you need to complete your purchase?
- How long will you need the bridging loan?
Build in some extra time for unexpected delays, especially if your exit strategy involves selling another property.
Look at your finances realistically.
Work out how much deposit you can put down and ensure you can cover all the fees involved. Remember to factor in any renovation costs if you’re planning improvements.
Speaking with an experienced broker early in your property search often proves worthwhile.
They can check if bridging finance suits your situation and explain your options clearly. Even if you’re just exploring possibilities, understanding what’s available helps you move quickly when you find the right property.
If you’d like to discuss bridging finance for your property purchase, get in touch with our team at Bridging Finance London.
We’ll look at your specific situation and help you understand your options. You can reach us by phone or book a consultation through our website.
FAQ
Most bridging loans can complete within 7-14 days. With all paperwork ready and a straightforward case, some lenders can provide funds in as little as 3 days.
You’ll usually need at least 25% of the property value as a deposit. Some lenders might ask for 30-40%, depending on your circumstances and the property type.
Read more: Do You Need a Deposit for a Bridging Loan?
No, but if your exit strategy involves refinancing to a mortgage, lenders will want to see evidence that you’re likely to qualify for one.
Most property types including residential, commercial, mixed-use, and even land. This includes properties needing renovation that traditional mortgage lenders won’t consider.
Read more: What is a Bridging Loan Secured Against?
Not necessarily. You can choose to roll up the interest and pay everything at the end of the term, make monthly interest payments, or have the interest deducted at the start.
You’ll need to repay the loan through your planned exit strategy – usually either selling a property or refinancing to a traditional mortgage.
Read more: How Do You Pay Back a Bridging Loan?