What Is It?
What Is a Bridging Loan?
A bridging loan is a short-term secured loan, typically lasting between 1 and 24 months, used to bridge a gap in funding. Most commonly, it bridges the timing gap between buying a new property and completing the sale of an existing one - but the use cases are far broader than that.
The loan is secured against a property (residential or commercial), and repaid from a pre-agreed exit strategy - the plan for paying the loan off. Common exit strategies include selling the secured property, remortgaging onto a longer-term product, or using proceeds from the sale of another asset.
How Does Bridging Loan Interest Work?
Bridging loan interest is quoted as a monthly rate, not annual. A rate of 0.75%/month equates to roughly 9% per year before compounding - but bridging is designed for short terms, so the total interest cost depends heavily on how long you hold the loan.
There are three main ways interest is structured:
Retained Interest
Option 1 The lender deducts the full term's interest from the advance on day one. You receive the net amount; the gross loan is repaid at the end. Example: £500k gross loan at 0.75%/mo for 9 months = £33,750 interest retained. You receive £466,250 on day one.
Rolled-Up Interest
Option 2 Interest accrues monthly, compounding onto the loan balance. Nothing is paid during the term - the total is repaid at the end. Example: £500k loan at 0.75%/mo. After 9 months you repay approximately £534,600 (interest compounded on the growing balance).
Serviced Interest
Option 3 Interest is paid monthly in cash, like a standard loan. Available to borrowers with income. Keeps the total cost lower than rolled-up or retained. Example: £500k at 0.75%/mo = £3,750/mo. After 9 months you have paid £33,750 and the capital balance remains £500k.
Open vs Closed Bridging Loans
Closed Bridging
A closed bridge has a confirmed, fixed repayment date - for example, where contracts have exchanged on the sale of a property and completion is due on a known date. Lenders prefer closed bridges because repayment is certain. They typically attract slightly lower rates.
Open Bridging
An open bridge has no fixed repayment date. The borrower has a credible exit strategy (e.g. a property listed for sale, or a remortgage application in progress), but the precise repayment date is not known. Lenders will still want to understand the exit carefully, and will set a maximum term - typically 12–18 months - beyond which the loan cannot run.
Most bridging loans in practice are open bridges. Lenders price open and closed loans similarly, with the key difference being how much evidence of the exit is available.
First Charge vs Second Charge Bridging
The "charge" refers to the lender's priority claim over the property in the event of a default.
First Charge
The bridging lender holds the primary security. If the property is repossessed and sold, they are repaid first. First charge loans carry lower rates because the lender's risk is lower. Most bridging is first charge - either on an unencumbered property, or where the bridge simultaneously repays an existing mortgage.
Second Charge
A second charge bridge sits behind an existing first charge mortgage. The mortgage lender must consent to the second charge. Second charge rates are higher (typically 0.85–1.25%/mo vs 0.55–0.85%/mo for first charge) because the bridging lender takes more risk. Second charge bridging is useful when the borrower wants to retain their existing mortgage.
LTV and How It Is Calculated
LTV (loan-to-value) is the loan amount as a percentage of the property's value. It is the primary risk driver for bridging lenders - the lower the LTV, the more equity the lender has as a buffer, and the lower the rate they will offer.
For bridging, LTV is assessed on the current market value of the property (not purchase price, not future value after works). Most lenders cap bridging LTV at 70–75% for residential and 65–70% for commercial.
The Bridging Loan Process: Enquiry to Drawdown
- 1
Enquiry
You approach a broker or lender with your requirement. A good broker will ask for property details, loan size, LTV, exit strategy, and timescale. They will identify suitable lenders and provide indicative terms within hours.
- 2
Decision in Principle (DIP)
The chosen lender issues a DIP - an indication of the terms they can offer, subject to valuation and full credit underwriting. This is usually issued within 24–48 hours of a properly packaged submission.
- 3
Valuation
The lender instructs a RICS-qualified surveyor to inspect the property and provide a Red Book valuation. This confirms the property value on which the LTV calculation is based. The borrower pays for this.
- 4
Formal Offer
Subject to a satisfactory valuation and credit assessment, the lender issues a formal offer setting out the loan terms, rate, fees, and conditions. The borrower reviews and accepts.
- 5
Legal
Solicitors on both sides handle title, searches, and the loan agreement. The borrower pays the lender's legal costs as well as their own. This is often where time is lost on a fast transaction.
- 6
Drawdown
Once legal formalities are complete, funds are released. Most lenders can draw down within 1–2 days of final legal sign-off. From a clean enquiry to drawdown: typically 2–6 weeks.
Exit Strategies
Lenders assess your exit strategy as carefully as the security itself. Common exits include:
- Sale of the secured property - the most common exit. The property is sold and the bridge is repaid from proceeds.
- Remortgage to a standard mortgage - the property is refinanced onto a term mortgage once a short-term situation resolves (e.g. a renovation is complete).
- Development refinance - completed units are refinanced onto buy-to-let or commercial mortgages, releasing funds to repay the bridge.
- Sale of another asset - funds from the sale of shares, a business, or another property are used to repay the loan.
- Cash injection - a known future event (inheritance, contract payment, business exit) provides the repayment funds.
What Does a Bridging Loan Cost?
The advertised monthly rate is not the only cost. A complete picture includes:
- Monthly interest rate - typically 0.55–1.25%/month depending on LTV, property type, and credit profile
- Arrangement fee - 1–2% of the loan, added to the loan or paid on drawdown
- Valuation fee - £600 to £2,500+ depending on property size and location
- Lender's legal fees - £800 to £2,000+, paid by the borrower
- Broker fee - 0–1% depending on the broker (at Doulton Bridging Finance, we are paid by the lender for most transactions)
- Exit fee - some lenders charge 0.5–1% on repayment; many do not
Worked Example: £500,000 Bridging Loan, 6 Months at 0.75%/mo
Gross loan amount£500,000
Interest (0.75% × 6 months, retained)£22,500
Arrangement fee (1.5%)£7,500
Valuation fee£900
Legal fees (est.)£2,500
Net advance to borrower£466,600
Total cost of loan~£33,400
Bridging Rates by Loan Type - October 2026
| Loan Type | From | Typical LTV | Charge |
|---|---|---|---|
| Prime Residential | 0.55%/mo | Up to 55% | 1st |
| Standard Residential | 0.55%/mo | Up to 75% | 1st |
| Semi-Commercial / Mixed Use | 0.65%/mo | Up to 70% | 1st |
| Commercial | 0.70%/mo | Up to 65% | 1st |
| Adverse Credit Residential | 0.85%/mo | Up to 65% | 1st |
| Second Charge | 0.85%/mo | Up to 65% | 2nd |
| Land / Development | 0.85%/mo | Up to 65% GDV | 1st |
When Do People Use Bridging Loans?
Breaking a Property Chain
Chain Break A buyer's purchase is ready but their sale has fallen through. A bridge allows them to buy the new property immediately, removing chain risk.
Buying at Auction
Auction Purchase Auction purchases complete in 28 days - too fast for a conventional mortgage. A bridge provides immediate finance; the borrower remortgages once in.
Property Refurbishment
A property is uninhabitable and unmortgageable. A bridge funds acquisition and works; once habitable it is remortgaged or sold.
Urgent Tax or Business Need
Tax / Business A business or individual needs to meet a tax liability or deadline. A bridge secured on property provides fast, certain capital.
Development Exit
A developer's build is complete but the long-term sale or refinance is delayed. A development exit bridge refinances the build loan at a lower rate while sales proceed.