What is a bridging loan in plain English?
A bridging loan is a short-term loan secured against property. Think of it as temporary funding that bridges a gap between needing money now and having the money later. The most common example is buying a new home before your existing one has sold — you need the purchase funds now, but the sale proceeds are coming later. A bridging loan provides the funds in the meantime.
Bridging loans are typically repaid within one to 12 months, though some can last up to 24 months. They are secured against property, which means the lender has a legal claim on the property until the loan is repaid. If you cannot repay, the lender can ultimately sell the property to recover their money. This security is what makes bridging loans possible — the lender is protected by the value of the property.
How is it different from a mortgage?
A mortgage is a long-term loan (typically 25 to 35 years) with regular monthly repayments. You gradually pay off the capital over the term of the mortgage. A bridging loan is short-term (months, not years) and the full capital is repaid in one lump sum at the end, rather than in monthly instalments.
Mortgages have lower interest rates (typically 4% to 6% per year in current market conditions) because they are long-term and the lender has a long relationship with the borrower. Bridging loans have higher interest rates (typically 6% to 18% per year, quoted as 0.5% to 1.5% per month) because they are short-term and carry higher administrative costs relative to the lending period.
Mortgages take four to eight weeks or longer to arrange. Bridging loans can complete in as little as one to two weeks, and sometimes faster. This speed is one of the main reasons people choose bridging loans.
When would I need a bridging loan?
You might need a bridging loan if you are buying a property at auction and need to complete within 28 days. You might need one if you have found your dream home but your current property has not yet sold. Property developers use them to fund renovation projects on properties that are too rundown for a normal mortgage. Business owners sometimes use them to fund commercial property purchases when speed is essential.
The common thread is always the same: you need property-related funding quickly, for a short period, and you have a clear plan for how you will repay it.
Key terms you need to understand
LTV (Loan-to-Value)
This is the loan amount expressed as a percentage of the property value. A £200,000 loan on a £300,000 property is 67% LTV. Most bridging lenders offer up to 75% LTV. The lower the LTV, the lower the interest rate you will typically pay.
Exit strategy
This is your plan for repaying the loan. It might be selling a property, refinancing onto a mortgage, or receiving funds from another source. The exit strategy is the single most important factor in a bridging loan application — without a credible exit, no lender will approve the loan.
First charge and second charge
A first charge means the bridging lender has the primary claim on the property. A second charge means there is an existing mortgage (first charge) and the bridging lender sits behind it. First charge loans are cheaper and simpler than second charge loans.
Rolled-up interest
Instead of making monthly interest payments, the interest is added to the loan balance and repaid at the end along with the capital. This is the most common arrangement for bridging loans and means no monthly cash outflow during the loan term.
Arrangement fee
A fee charged by the lender for setting up the loan, usually 1% to 2% of the loan amount. This can often be added to the loan rather than paid upfront.
How much does it cost?
The total cost of a bridging loan includes interest, arrangement fees, valuation fees, legal fees, and sometimes exit fees. As a rough guide, a £200,000 bridging loan held for six months at a typical rate might cost between £10,000 and £20,000 in total, depending on the specific terms. This is expensive compared to a mortgage, which is why bridging should only be used for genuinely short-term needs.
The single best way to reduce costs is to keep the loan term as short as possible and to borrow at the lowest LTV you can manage. Every month the loan is outstanding adds to your interest bill, so repaying early saves money.
How do I apply?
The best way to apply for a bridging loan is through a specialist broker rather than approaching lenders directly. Brokers compare the whole market, know which lenders suit specific situations, and can often negotiate better terms. They also package your application professionally, which speeds up the process and reduces the risk of unnecessary declines.
The typical documentation you will need includes proof of identity (passport, driving licence), proof of address (utility bill, bank statement), details of the property being used as security, a description of your exit strategy, and recent bank statements showing your financial position.
What are the risks?
The main risk is that your exit strategy fails and you cannot repay the loan on time. This can lead to penalty interest rates, additional fees, and in the worst case, the lender selling the property to recover their money. The other significant risk is cost overruns — if a renovation project takes longer or costs more than expected, your bridging loan term may need to extend, increasing your total costs.
These risks are manageable with proper planning. Have a realistic exit strategy, build time buffers into your loan term, and ensure you can afford the costs even if things take longer than expected.
Common mistakes beginners make
- Not having a clear exit strategy — never take a bridging loan without knowing exactly how you will repay it
- Underestimating costs — factor in all fees, not just the interest rate
- Being too optimistic on timing — always allow more time than you think you will need
- Approaching lenders directly — a broker gets you better terms and saves time
- Not reading the terms carefully — check for exit fees, extension penalties, and default interest rates
Getting started
If you think a bridging loan might be right for your situation, the first step is to speak with a specialist broker who can assess your needs and explain your options in plain English. Nesto matches you with experienced, FCA-regulated bridging loan brokers who will guide you through the process from start to finish. The matching service is completely free, and there is no obligation to proceed.