What Is a Bridging Loan? A Comprehensive Guide

Bridging loans can be useful for lots of reasons such as helping you buy a house if your chain breaks down, if you're downsizing but want to buy before you sell, or if you've bought at auction but can’t get the funds ready on time. We explain what bridging loans are, when they are used, pros & cons, costs and how to apply.

What is a bridging loan?

Bridging loans are a way of borrowing money in the short term. Unlike mortgages, bridging loans can be arranged quickly and they offer homeowners the flexibility to act quickly in a competitive market.

Bridging loans are commonly used by people wanting to continue with a purchase if they’ve got problems with their sale: the Bridging Trends report for 2024 Q2 showed 23% of bridging loans were used to prevent a chain break. Other uses of bridging loans include if you’re buying a house at auction and need funds fast or if you’re a Buy to Let investor and you’re purchasing a property that needs to be renovated before you can take out a traditional mortgage.

But bridging loans are a secured loan, meaning that you have to secure an asset against them, usually a property or properties. As there is a risk of losing your asset, bridging loans are sometimes known as the loan of last resort.

What can I use a bridging loan for?

Here are some examples of when you may consider using a bridging loan:

• You are in a property chain that has collapsed and you don’t want to lose out on buying your dream home.
• You are buying an auction property and need to raise funds quickly. See our guide getting a mortgage on an auction property which explains your options.
• If you want to downsize. By taking out a bridging loan to fund your new purchase, you’ll have longer to sell your current home so you may be able to achieve a higher sale price. It also removes the stress of having to buy and sell at the same time.
• When buying a property that is unmortgageable. Your plan is to make it habitable or lettable so a traditional mortgage can eventually be arranged.
• If you’re buying land, it could help cover the cost of the land and building work of the property while you apply for a mortgage.

Get in touch with specialist brokers Chartwell Funding – 01454 809 300.  Get FREE independent advice, a no obligation quote and instant decision. 

How do bridging loans work?

Here’s the process of how bridging loans work if you own your property outright. Although you can also get bridging loans if you have a mortgage on your property.

1. Find your new home: Say it costs £300,000 and if you can’t move quickly, you’ll lose out.
2. You need to ‘bridge the gap’ in funding: You own a house worth £350,000 but there’s a delay in selling it. So you need an alternative way of raising the £300,000 to avoid missing out on your purchase.
3. So you take out a bridging loan: You speak to a bridging loan broker to take out a bridging loan of £300,000 so that you can buy your new house. Your current house stays on the market and you are actively looking for a buyer.
4. Your old home sells: Once your sale completes, you’ll get the proceeds of the sale, minus any selling fees.
5. Pay back the loan: The final stage is to pay back the bridging loan, plus any interest and fees.

How much can I borrow?

You can typically borrow between £50,000 and £10 million with a bridging loan. The amount depends on how much equity you have available. The maximum loan, including interest, is normally limited to 75% loan to value. The loan is then secured on the property or it can be across multiple properties to raise the required funds. Bridging loans, unlike a mortgage, are not directly linked to your income.

Types of bridging loans

There are different types of bridging loans:

First and second charge bridging loans

Because it is a secured loan, when you take out a bridging loan a charge will be placed against your property. If you own the property outright this will be a first charge loan – meaning the lender will be the first to be repaid when the property is sold.

If you have a mortgage or existing loan on the property, that will be the first charge loan and the bridging loan will be a second charge loan. With a second charge bridging loan you will need permission from the first charge lender before you can take out the bridging loan. These are typically more expensive than first charge bridging loans.

First charge vs second charge bridging loans

	Own your home outright	Own your home with a mortgage
Can I get a first charge bridging loan?	Yes, if you meet the lender’s criteria.	No
Second charge bridging loans	You don’t need to take out a second charge loan as you can take out a first charge one, if you can meet the lender’s criteria.	Yes, if you meet the lender’s criteria.

Fixed or variable interest bridging loans

Just like with a mortgage, you can choose to pay fixed or variable rate interest with bridging loans. As you’d expect, with a fixed rate bridging loan you’ll pay a set interest rate for the duration of the term. While with a variable rate bridging loan, the rate you’ll pay may go up or down if the Bank of England raises or cuts interest rates.

Fixed vs variable interest bridging loans

What happens to my payments if?	Fixed rate bridging loan	Variable rate bridging loan*
Interest rates go up	Repayments stay the same	Repayments go up
Interest rates go down	Repayments stay the same	Repayments go down

Open bridging loans vs closed bridging loans

With open bridging loans, there is no fixed repayment date and as such it can be repaid whenever your funds become available. But bear in mind, lenders usually expect you to clear the debt within one year. However in some cases they may offer longer repayment terms.

Conversely, with closed bridging loans, there is a fixed repayment date. Closed bridging loans are usually cheaper than open bridging loans.

Open bridging loans vs closed bridging loans: When you have to repay

	Open bridging loans	Closed bridging loans
When can I pay back my bridging loan?	No fixed repayment date so you repay when you wish. Lenders usually require you to repay within 1 year but some lenders offer longer repayment terms.	You’ll have a fixed repayment date.

What are the pros and cons of bridging loans? 

Make sure you balance up the pros and cons before you apply for a bridging loan.

Pros of bridging loans

• Speed: You can quickly borrow money, which could keep your property transaction on track.
• Bigger loans: It is possible to borrow very large sums of money.
• Flexibility: The repayment terms can be flexible to fit in with your plans.
• Provide extra options: It may possible to secure lending on properties where high street lenders may not.

Cons of bridging loans

• Secured against property: Bridging loans are a secured form of borrowing, so you’ll need to put up an asset against the loan. This means you risk losing that asset, for example a property, if you can’t repay the bridging loan.
• Higher rates: You pay for the convenience of fast, flexible finance with a higher interest rate.
• Fees: Bridging loans can come with a range of fees that add to their expense.

For FREE advice on bridging loans from our specialist finance partners at Chartwell Funding. Submit an enquiry form now or call them on 01454 809 300. 

Bridging loan interest rates

Interest rates tend to be higher on bridging loans as you are paying for the privilege of borrowing a lot of money quickly. Because bridging loans tend to be short term, interest is charged daily rather than annually.

There are three ways that the interest on a bridging loan is charged:

Way interest is charged	How this works
Monthly	Similar to an interest-only mortgage, you’ll pay the interest payments each month and it is not added to the loan.
Rolled up	Interest payments are added to the loan and paid when the bridging loan is cleared.
Retained	You borrow the interest upfront for an agreed period and then when the loan is paid back, any unused interest is returned to you.

To get the best bridging loan interest rate, make sure you shop around. And the easiest way to do this is by using a specialist bridging loan broker. The experienced team of brokers at Chartwell Funding will give you free advice when securing your bridging loan.

However, there’s another important benefit of using a bridging loan broker; that’s because unlike standard mortgages, bridging loans interest rates can be negotiated. So by using a good bridging loan broker, you may get a better rate.

Get FREE advice on bridging loans from specialist brokers Chartwell Funding. Click here or call them on 01454 809 300. 

How much does a bridging loan cost?  

Alongside the interest rate, there are other bridging loan fees you may have to pay. These include:

• Arrangement fee paid to the lender – typically 2% of the loan and added to the loan.
• Administration fee – can be payable upfront.
• Legal fees – part payable upfront to your conveyancing solicitor and the rest on completion.
• Valuation fees – range from £900 – £2000 depending on the lender and how fast you need the funds.

Bridging loan cost examples

Here are two examples of how a bridging loan works in the UK.

Bridging loan cost example 1

Say you currently own a £400,000 property with an outstanding mortgage of £100,000. You want to downsize to a £250,000 property but your current house sale is delayed. You want to take out a bridging loan for £250,000 for 3 months so that you can go ahead with the purchase of your new house. You’ll then pay back the bridging loan when the sale of your current home completes. Here’s how much that could cost:

Bridging Loan Borrowed	£250,000
Monthly Interest Rate	0.58%
Interest Amount	£4,463 (Assumes full term of 3-months, calculated daily)
Arrangement fee	£5,000 (Added to loan)
Valuation Fee (Inc. VAT)	£565
Telegraphic Transfer Fee	£35 (Added to loan)
Administration Fee	£145 (Added to loan)
Estimated legal costs	£900
Redemption Administration Fee	£40
Total cost	£261,148

Bridging loan cost example 2

Say you currently own a £600,000 property outright and want to take out a £400,000 bridging loan for 12 months so that you can downsize to a £400,000 property before selling your current home. How much might that cost?

Bridging Loan Borrowed	£400,000
Monthly Interest Rate	0.58%
Interest Amount	£29,320 (Assumes full term of 12-months, calculated daily)
Arrangement fee	£8,000 (Added to loan)
Valuation Fee (Inc. VAT)	£870
Telegraphic Transfer Fee	£35 (Added to loan)
Administration Fee	£145 (Added to loan)
Estimated legal costs	£900
Redemption Administration Fee	£40
Total cost	£439,310

Bridging loan calculator

Use this bridging loan calculator to get a detailed estimate of interest, charges and other costs of your bridging finance and get a quote instantly. How much you can borrow with a bridging loan will depend on the value of your properties and your personal finances. The maximum loan, including any retained or rolled up interest is normally limited to 75% loan to value (this can be over multiple properties).

The bridging loan may also be limited depending on the condition of the property, your credit history, any essential works required at the property or the level of finance available to refinance.

How to get a bridging loan

Here’s the process of how to get a bridging loan:

1. Find a broker and make an enquiry

The bridging loan process starts by finding a bridging loan broker and making an enquiry. If you use Chartwell Funding you can submit an enquiry form online or speak to a specialist broker on 01454 809 300. They’ll run through why you want a bridging loan, how much you want to borrow and how you’ll repay it. Your exit plan may be selling a property or if you’re buying an unmortgageable property, your exit plan may be to renovate it so you can take out a traditional mortgage.

2. The loan offer

Once your bridging loan broker understands your needs, they’ll speak to lenders on your behalf. Unlike with standard mortgages, bridging loan interest rates can be negotiated – so by using a good bridging loan broker, you may get a better rate. Your bridging loan broker will then contact you to explain your options. Once you’ve chosen a lender, your broker will complete the application form with detailed information about the property and your financial situation.

3. Eligibility check and pre-approval

The lender will assess your application against their bridging loan criteria they’ll arrange a property valuation too. While lending criteria varies, they’ll typically look at:

• Your exit strategy: This means how you will pay back the loan.
• The condition and value of the property you’re using as security, including any outstanding mortgage.
• Your financial circumstances, including debt and income.

Once these checks have been done, providing the lender is happy they will provide a conditional offer, including the loan amount, interest rates, loan terms and any other relevant information.

4. Legal work

Bridging loans require several legal steps and it’s important to use a solicitor or conveyancer experienced with dealing with bridging loans. If you speak to Chartwell Funding, they’ll explain how this process works in the initial call. Once legal checks are complete and all conditions are met, the lender will formally approve the loan.

5. Release of funds (Drawdown)

The process of releasing the funds is called drawdown.

Get a no obligation quote and instant decision from specialist brokers Chartwell Funding. Click here or call them on 01454 809 300

How long does it take to get a bridging loan?

Bridging loans usually take around 5-21 days to be approved, although in some cases it can happen faster than this.

Factors that could impact approval times include:

• How long it takes to value your property: It’s a secured loan so the lender will need your property to be valued.
• Different lenders will have different processing times, and these may change depending on how busy they are.
• How long it takes for the usual credit checks is also a factor that can impact how quickly your bridging loan could take to approve.

Who offers bridging loans?

Prior to the 2008 financial crisis, bridging loans were a more common lending product offered by the high street banks such as Nationwide, Halifax and Santander. At this time, bridging loans were used by people not wanting to lose out on their dream home. However, many stopped offering them after the credit crunch.

These days bridging loans tend to be offered by alternative lenders rather than the high street banks such as United Trust Bank, Precise mortgages, MT Finance or some regional building societies.

A bridging loan is specialist finance, and you should seek independent advice as they are considered a loan of last resort. You need to establish if more suitable alternatives are available and specialist brokers (such as Chartwell Funding) are experienced in helping to arrange these loans if and when required.

Get in touch with specialist brokers Chartwell Finding – 01454 809 300.  Get FREE independent advice, a no obligation quote and instant decision.

What documents and information do I need to get a bridging loan?

When you apply for a bridging loan you’ll need to provide:

• Proof of identity such as a passport.
• Proof of address, such as utility bills.
• Bank statements – usually for the last three months.
• Proof of your exit strategy: For example, if your plan is to remortgage the property to pay off the bridging loan, then a mortgage in principle should suffice.
• Evidence of assets and liabilities: The lender will want to see proof that you own the property you’re using as security. If you have a mortgage on the property, the lender will need to see details of how much you have outstanding on your mortgage.

You may need to supply additional documents depending on your circumstances but your bridging loan broker will explain this to you.

What are the alternatives to a bridging loan? 

There are a number of other options you may consider instead of taking out a bridging loan:

Remortgaging

Pros and cons of remortgaging vs bridging loans

• Pros: If you can remortgage to access the money you need, such as by remortgaging to release equity, instead of taking out a bridging loan you may be able to save money. This is for a number of reasons including being able to access better rates and also remortgage arrangement fees are generally much lower than the fees you’ll need to pay a bridging loan lender.
• Cons: Remortgaging can take up to three months. Plus, to get the best deals when you remortgage you’ll need to take out deal for at least 2 years and you may need to pay an early repayment charge if you want to pay it back early.

However, Chartwell Funding can advise you on your remortgage options as well as on bridging loans so they’ll explain the best options for you.

Let to Buy 

If you’re considering a bridging loan because you want to buy a new home but you’re struggling to sell your existing home, a Let to Buy mortgage may be an option. Let to Buy means you’ll have two mortgages: you’ll need a Let to Buy mortgage for your current property and take out a standard residential mortgage for the property you want to buy.

Pros and cons of Let to Buy vs bridging loans

• Pros: Let to Buy mortgage rates are cheaper than bridging loan rates plus you won’t need to pay expensive fees to set up a bridging loan. You’ll own two properties which may increase in value over time and you should get a monthly income too.
• Cons: You’ll have two mortgages and you’ll need to pay both if your previous property is empty. It’s a long-term investment and could take years for you to break even. Plus there’s tax to consider: income tax on rental income, needing to pay the higher rate of stamp duty on your new home as you’ll own two properties and there’s capital gains tax when selling to consider too. Plus, there are costs and responsibilities of being a landlord you’ll need to think about. Find out more in our guide Let to buy mortgages explained.

Secured loan

Another alternative is to take out a secured homeowner loan. However, as with bridging loans, your home is at risk if you don’t keep up the repayments.  

Personal loan

If the amount you want to borrow on a bridging loan is relatively small, this may be a cheaper option than a bridging loan.

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