FAQ's
Frequently Asked Questions
1. What is a bridging loan?
A bridging loan is a short-term property finance solution designed to “bridge” a funding gap. It provides fast access to capital, usually secured against property, until long-term financing or a property sale is completed. Bridging loans are often used in time-sensitive transactions.
2. How do bridging loans work?
Bridging loans are secured loans, typically lasting from a few weeks up to 18 months. Lenders assess the value of the property, your repayment plan (exit strategy), and your financial situation. The loan is repaid in full at the end of the term—usually via property sale or refinancing.
3. When would I need a bridging loan?
You might consider a bridging loan if you:
- Are buying a new home before your current one sells
- Need to complete a property auction purchase quickly
- Want to finance a property refurbishment or development
- Require temporary funding while waiting for a mortgage or sale proceeds
- Need short-term business or commercial property finance
4. What types of bridging loans are available?
There are several types of bridging loans:
- Open bridging loan: No fixed repayment date, but a clear exit plan is required
- Closed bridging loan: Has a set repayment date, typically backed by a signed sale agreement
- First charge bridging loan: The loan is the primary charge on the property
- Second charge bridging loan: There is an existing mortgage, and the bridging loan is secured behind it
5. How much can I borrow with a bridging loan?
Most lenders offer bridging loans from £25,000 up to several million pounds. Loan amounts usually go up to 75–80% of the property’s value (Loan-to-Value ratio or LTV), depending on the deal and the lender’s risk assessment.
6. How fast can I get a bridging loan?
Speed is one of the main benefits of bridging loans. In many cases, funds can be released within 3 to 14 days, depending on valuation, legal checks, and how quickly documents are provided.
7. What is an exit strategy in bridging finance?
An exit strategy is your plan for repaying the bridging loan. Common exit strategies include:
- Selling the property
- Refinancing with a traditional mortgage
- Receiving inheritance or another form of capital
- A strong, realistic exit strategy is crucial for loan approval.
8. What are the costs of a bridging loan?
Typical bridging loan costs include:
- Monthly interest: Usually 0.5% to 1.5% per month
- Arrangement fee: Typically 1–2% of the loan amount
- Valuation and legal fees: Often paid upfront or rolled into the loan
Always review the full Annual Percentage Rate (APR) and any early repayment fees.
9. Can I get a bridging loan with bad credit?
Yes, you may still be eligible for a bridging loan with bad credit. Bridging lenders often focus more on the property value and your exit strategy than your credit score. Specialist lenders offer bad credit bridging loans based on overall deal quality.
10. Are bridging loans regulated?
Bridging loans secured against a borrower’s primary residence are usually regulated by the Financial Conduct Authority (FCA). Unregulated bridging loans, often used for investment or business purposes, are not overseen by the FCA.
11. Can I use bridging loans for commercial property?
Yes. Bridging finance is frequently used for commercial purposes such as:
- Purchasing commercial property quickly
- Funding refurbishment or conversions
- Securing finance for business cash flow needs
- Covering VAT or tax bills with short-term funding
12. What are the pros and cons of bridging loans?
Pros:
- Fast access to funds
- Flexible lending criteria
- Useful in time-sensitive situations
- Can be used for residential or commercial purposes
Cons:
- Higher interest rates than traditional mortgages
- Short repayment periods
- Requires a clear exit strategy
- Additional fees (valuation, legal, arrangement)