What is a bridging loan?
A bridging loan is a short-term loan secured against property, typically lasting between 1 and 24 months. It 'bridges' a financial gap — usually between needing to buy a property and either selling another property or refinancing onto a conventional mortgage. Bridging loans complete much faster than mortgages (sometimes in days rather than weeks) but at significantly higher interest rates.
The main uses of bridging loans in the UK
Auction property purchases
When you buy a property at auction, you typically have 28 days to complete. Standard mortgage applications take 4–8 weeks minimum — too slow for auction. A bridging loan can complete in as little as 3–5 working days in straightforward cases, making it the standard funding route for auction purchases. The bridging loan is then either repaid by selling the property or refinanced onto a standard mortgage.
Breaking a property chain
If you want to buy your next home before your current property has sold, a bridging loan lets you purchase first and repay when your existing home completes. This avoids the stress of coordinating simultaneous exchange and completion, and can make you a more attractive buyer to sellers.
Property development and refurbishment
Standard mortgage lenders typically won't lend on properties in very poor condition or uninhabitable properties. A bridging loan funds the purchase and refurbishment, after which the property is either sold (and the bridge repaid from proceeds) or refinanced onto a standard buy-to-let or residential mortgage.
Commercial-to-residential conversion
Permitted development rights allow many commercial buildings to be converted to residential use. Bridging loans fund these conversion projects during the development phase.
Land purchase
Land with or without planning permission is typically outside standard mortgage criteria. Bridging loans provide funding for land purchases, particularly where planning is being secured and development will follow.
Business cash flow
Some businesses use bridging loans secured against commercial property to fund short-term cash flow requirements, pending a specific event (a contract payment, refinancing, or asset sale).
How much does a bridging loan cost?
Bridging loan interest is typically charged monthly at 0.5–1.5% per month (roughly 6–18% annualised). There are also arrangement fees (typically 1–2% of the loan), valuation fees, legal fees, and sometimes exit fees. The total cost of a 6-month bridging loan at 0.75%/month on £300,000 is approximately £13,500 in interest plus £3,000–£6,000 in fees — around £16,500–£19,500 total.
This is expensive compared to a standard mortgage, which is why bridging should be used for its intended purpose: short-term situations where speed or flexibility is essential, and where you have a credible exit strategy in place.
The exit strategy: the most important factor
Lenders assess the credibility of your exit strategy as closely as they assess the security property. A weak exit strategy — particularly in a slower property market — can make a bridging loan very risky. Always have a clear, realistic plan for how you'll repay the bridge before taking one out.
Getting the right bridging loan
Bridging loan rates and terms vary enormously between lenders, and the wrong choice can be very expensive. A specialist bridging loan broker compares the whole market, structures the deal correctly, and knows which lenders can move fastest for your specific situation. Nesto matches you with the right bridging specialist for free.