Welcome to our guide to bridging finance. In this guide, you'll discover how bridging loans work, the criteria you need to meet to qualify, how to compare different deals, and other essential information to help you navigate this type of short-term financing. Whether you're looking to cover a funding gap, purchase a property quickly, or complete a project, we’ll walk you through the key details of bridging loans to help you make an informed decision.
What is a bridging loan & how do they work?
A bridging loan is a type of short-term financing that can be quickly arranged and is secured against an asset, typically a property owned by the borrower. As the name implies, it is designed to "bridge" the gap between an immediate financial need and the availability of longer-term finance.
Bridging finance is commonly used in property purchases when a traditional mortgage is not feasible, either due to time constraints or because the borrower doesn’t immediately qualify for one. Typical scenarios include property auction purchases or chain breaks in property transactions.
These loans are typically offered on an interest-only basis, with higher interest rates compared to standard mortgages. To secure a bridging loan, you must present a clear exit strategy—such as selling a property or securing long-term financing—to demonstrate how you will repay the loan at the end of the term.
What can they be used for?
Bridging finance is most often used for property investment—whether commercial or residential—when timing is crucial, or when the borrower is unable to secure longer-term finance immediately.
Bridging loans can be particularly helpful in the following scenarios:
- Chain breaks: When you are ready to purchase a new home but need to sell your current property first, a bridging loan can cover the shortfall and allow you to proceed with the purchase if there are delays in your sale.
- Auction purchases: Since auction purchases require a downpayment on the day, and mortgages take longer to arrange, a specific type of bridging loan is ideal for buyers who need quick access to funds for properties bought at auction.
- Renovation work: Some properties are considered "uninhabitable" by mortgage lenders and need substantial work before being eligible for a mortgage. A bridging loan can provide the funds needed to carry out renovations and bring the property into a mortgageable condition.
- Buying land: Bridging loans can also be used to secure land purchases while the buyer arranges long-term finance or planning permissions.
While these are the most common uses, bridging loans are often unregulated, allowing them to be used for any legal purpose, providing flexibility for various financial needs.
Eligibility requirements
To qualify for a bridging loan, you must meet several key criteria:
Have an Exit Strategy
The most critical aspect of bridging loan eligibility is demonstrating a strong and viable exit strategy—how you plan to repay the loan. Common exit strategies include:
- Remortgaging the property based on its current value, using the funds to repay the bridging loan in full.
- Selling the property, especially in investment cases, based on its increased market value post-renovation.
Some lenders may accept alternative exit strategies, such as using inheritance or liquidating investments, though these are considered non-standard and may come with less favourable terms.
Credit History Requirements
Since many bridging loans are unregulated, lenders have flexibility in working with borrowers who have poor credit histories, including severe issues. However, the strength of your exit strategy plays a critical role—if your credit problems undermine your ability to execute the exit strategy, your chances of approval decrease.
Deposit Requirements
Typically, you’ll need to provide a deposit of at least 25-30% of the property’s value, though the most competitive bridging loan rates are usually offered when the deposit reaches around 40%.
In some cases, you may be approved without a traditional deposit if you hold sufficient equity in another property or asset, which the lender agrees to secure the loan against. This is often referred to as equity release or cross-collateralisation.
How to get a bridging loan
Follow these quick and easy steps to start your journey towards a bridging loan application:
Ensure you're eligible: Review the criteria mentioned above to confirm that you meet the requirements. Keep in mind that bridging lenders often offer flexibility, so even if your application isn't perfect—such as having bad credit or non-standard circumstances—you may still qualify for a bridging loan.
Prepare evidence of your exit strategy: This could include an agreement in principle if you plan to remortgage, or a valuation report demonstrating that the property’s sale will generate sufficient funds to repay the loan. Having clear proof strengthens your application and reassures lenders about your ability to settle the debt.
Speak to a broker: This is highly recommended for bridging finance applications, as they can be high-risk and complex.
How much can you borrow?
Most bridging loan providers allow eligible customers to borrow up to 75% of the property’s value. When it comes to maximum loan amounts, there is no strict limit, as some lenders assess applications on a case-by-case basis. However, many have a maximum starting at around £2 million, though negotiations are often possible.
On the lower end, minimum loan amounts are typical, with most lenders requiring you to borrow at least £25,000 to qualify for bridging finance.
Available lenders for bridging
Bridging finance is mostly provided by specialist lenders. The table below shows examples of lenders who operate in this space, along with some of their criteria.
|
Bridging Lender |
Loan Amounts Available |
Maximum LTV |
|
United Trust |
£125k to £15m |
70% |
|
Precise Mortgages |
£50k / No upper limit |
Case-by-case |
|
LendInvest |
£75k to £15m |
75% |
|
MT Finance |
£50k to £10m |
70% |
|
Greenfield Mortgages |
£26k to £5m |
70% (100% with extra security) |
Things to consider before you apply
There are several key things to think about before you apply for bridging, including:
How do you want to pay interest?
Bridging finance lenders will give you three options for how interest is charged:
- Rolled up: Interest is compounded monthly and paid off in a lump sum at the end of the term. This option is suitable for those who may not have available capital until the exit strategy is realised.
- Monthly: Borrowers make monthly interest payments while repaying the principal at the end of the term, similar to an interest-only mortgage.
- Retained: You "borrow" the interest in advance, adding it to the loan amount. The total, including the interest, is calculated upfront and paid in full at the end of the loan term.
Do you need a regulated loan?
Most bridging loan agreements are unregulated, allowing lenders more flexibility to operate outside the lending rules established by the Financial Conduct Authority (FCA). This flexibility enables lenders to customise criteria and offer bespoke bridging deals.
However, if the loan involves a residential property, such as securing the debt against your home or using the funds to renovate a property you plan to live in, you will need a regulated bridging finance provider. In these cases, the loan must comply with FCA regulations to protect consumers and ensure fair practices.
Be aware of fees
When calculating the total cost of your bridging finance, it’s important to discuss the associated fees with your broker or lender.
Using a bridging finance broker is recommended
Bridging finance can be expensive and risky without proper guidance. Fortunately, there are brokers who specialise in bridging finance.
If you're considering applying for a bridging loan, it's highly recommended to consult with a qualified advisor. Bridging finance brokers have the expertise, experience, and industry connections to help you secure the best possible deal or guide you toward a more suitable alternative if one exists.
Frequently Asked Questions
Yes, while bridging finance is typically offered by specialist lenders, some high street banks like NatWest, HSBC, Santander, and Barclays also provide these loans.
One advantage of using a whole-of-market broker is that they can compare bridging deals from both high street banks and specialist lenders, including exclusive deals not available to the general public. The broker will handle the entire process, finding the most suitable deal for you without you having to do any of the legwork.