Bridging loans provide short-term funding for property transactions when timing doesn’t align or standard mortgages aren’t suitable. They’re powerful tools but come with significant costs and risks.

What Are Bridging Loans?

Bridging loans are short-term secured loans, typically lasting weeks to months rather than years. They “bridge” gaps – most commonly the gap between buying a new property and selling an existing one.

Key characteristics:

• Short term: typically 3-18 months
• Higher interest rates than mortgages
• Quick arrangement: often 2-4 weeks
• Flexible use: various property purposes
• Exit strategy essential: how will you repay?

When Bridging Makes Sense

Chain Breaking

You’ve found your new home but haven’t sold your current property. Bridging lets you proceed without waiting for your sale.

Auction Purchases

Auction purchases require completion within 28 days – too fast for standard mortgages. Bridging meets the deadline; you refinance to a mortgage afterward.

Unmortgageable Properties

Properties needing significant renovation may not qualify for mortgages. Bridging funds the purchase; you renovate then refinance.

Development Projects

Developers use bridging for site acquisition and short-term funding before development finance or sales complete.

Business Opportunities

Quick access to funds for time-sensitive opportunities – commercial property, business acquisition, cash flow needs.

Types of Bridging

Regulated Bridging

Secured against your home (or a property you’ll live in). Regulated by the FCA with consumer protections.

Unregulated Bridging

For investment properties and commercial purposes. Fewer regulatory requirements; more flexibility but less protection.

First Charge

The bridging loan is the primary debt against the property. Lower rates due to better security position.

Second Charge

The bridging loan sits behind an existing mortgage. Higher rates; existing lender must consent.

Costs

Bridging is expensive compared to mortgages:

Interest

Typically 0.5-1.5% per month (6-18% annually). Interest may be:

• Serviced: paid monthly
• Rolled up: added to the loan and paid at the end
• Retained: deducted from the loan upfront

Arrangement Fees

Typically 1-2% of the loan amount.

Exit Fees

Some lenders charge 1-2% on repayment.

Valuation and Legal

Standard property transaction costs apply.

Example:

£200,000 bridging loan for 6 months at 1% monthly:

• Interest: £12,000
• Arrangement fee: £4,000 (2%)
• Total cost: £16,000

This is significant cost for short-term funding. Only use bridging when the benefit exceeds these costs.

Exit Strategy

The most important aspect of bridging is how you’ll repay. Lenders won’t proceed without a credible exit:

Property Sale

Selling the bridged property or another property. Needs realistic timeline and pricing.

Refinancing

Moving to a mortgage or other long-term funding. Property must be mortgageable by the planned exit date.

Other Funds

Cash coming from other sources (inheritance, business sale, etc.). Must be genuinely expected.

Weak exit strategies cause applications to fail – or worse, leave borrowers trapped with expensive debt they can’t repay.

Risks

Cost Accumulation

If exit is delayed, interest keeps accumulating. Six months becomes twelve; costs double.

Forced Sale

Unable to refinance or sell? The lender can force sale to recover their debt – potentially at a bad time or price.

Market Changes

Property values can fall. If you can’t sell for enough to repay the bridge, you have a shortfall problem.

Rate Increases

Variable rate bridges can become more expensive during the loan term.

Alternatives to Consider

Before bridging, consider:

• Can you wait for your sale?
• Will the seller accept a delayed completion?
• Can family provide short-term support?
• Is a different purchase more practical?

Bridging solves real problems but shouldn’t be the first resort.

Talk to Us

SJ Financial Solutions arranges bridging loans when they’re the right solution. Contact us to discuss whether bridging suits your situation.