Bridging Loans

What are Bridging Loans?

Bridging Finance is used to provide short-term finance to enable the purchase of a property or the release of funds based on equity in a property. People think of it as a super-fast way of raising finance but in reality the majority of loans take at least a month or more to put in place.

How do they work?

Loans are normally in place for 3 to 24 months with an exit through sale of the property or into a more conventional loan such as a buy-to-let or commercial mortgage depending on property type, and we can help put this in place or get to agreement in principle at the outset.

Bridging finance is a relatively new industry, mushrooming since 2018. It is highly remunerative for the lenders because it is expensive debt relative to a long term mortgage, they require good security and typically net out at an LTV around 50-55%.

Bridging finance is normally provided as a loan secured against property. We have seen some flexible credit facilities but these are not typical.

Bridging finance providers will often require personal guarantees in addition to the property security, and they will want to know if you are a homeowner and whether you have a personal mortgage.

Pricing

Interest is charged monthly, given the short-term nature of this type of facility. Interest rates vary significantly depending on the required LTV, term of loan and amount. Current monthly interest rates vary between 0.50% and 1.50% per month. A minimum arrangement fee of c2.00% is also payable.

How does interest work?

When considering a bridging loan, it’s important to understand how interest will be charged. Lenders usually offer two main options: serviced or retained/deferred interest.

Serviced Interest:
With this option, you pay the interest each month, typically in arrears. It works similarly to a standard loan structure and helps prevent interest from accumulating on the loan balance. However, not all lenders offer this arrangement.
Retained or Deferred Interest:
Here, the total expected interest for the agreed term is built into the loan amount upfront. This means you make no monthly payments during the loan period. Some lenders add interest monthly, while others calculate and add the full amount at the start — the latter is generally less attractive, as you may end up paying interest on interest.

Deferring interest is particularly common in property transactions, such as auction purchases or refurbishments. It allows the borrower to focus on completing the works and increasing the property’s value before refinancing onto a longer-term product or selling the asset.

Net and gross loans

This is where the concept of “net” and “gross” loan comes in – so say your property purchase is £100k and you want to borrow as much as possible to do it up over the year and then sell it. The lender might say they lend a maximum of 65% LTV – so you might think you will get £65k as a loan, however you have to factor in the interest and fees. The “gross” loan might be £65k but if you estimate 1% per month interest that’s £12k out of the pot, together with say 3% arrangement fees
(£1950) a monitoring fee, a valuation fee, legal costs and everything else (say another 3% or £1950) you are looking at a “net” loan i.e. what you actually receive to complete the deal would be £65k minus £15,900 which is £49.1k.

Other Costs

Legal fees and possible early exit fees, depending on the type of loan, could be payable. We do work with lenders who don’t charge exit fees.

Take Note

Bridging loans should only be used as a short-term solution with a clearly defined exit strategy. They can be costly and are best viewed as a temporary or transitional form of funding.

If your planned exit is through refinancing, it’s advisable to secure written confirmation from your onward lender that they are prepared to take you on as a client. Some lenders are experienced in this process, and we can assist in identifying suitable options.

It’s essential to read all terms carefully before proceeding and to seek independent advice from your accountant and solicitor.

Problems can arise if your project or funding requirement takes longer than expected, as deferred interest can accumulate quickly. Extending a bridging facility or moving it to another lender can be expensive, and refinancing an existing bridge is often difficult.

Please note: your property may be at risk if you fail to keep up with repayments. If you have provided a personal guarantee, you could be held personally liable for any shortfall — this may include recovery action against your home or other personal assets.

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Steve Carter

Nathan Foster / Funding Friends

We worked with Nathan Foster on a complex refinancing deal. He worked tirelessly to deliver a solution, staying positive despite all the bumps in the road, and we ultimately achieved a very successful outcome. I would happily recommend Nathan and Funding Friends to others.

Ross McDonald

Expert Advice and Support from Andrew Robertson

Andrew Robertson was a source of constant support in this process. Always willing to help and advise, he was at the end of a call or email for what seemed 24/7 during this our funding application. Knowledgeable, diligent and thoughtful, he helped facilitate achieving our funding goals and helped us persevere through some tougher challenges. I would highly recommend him and Funding Friends.

Victoria Sylvester

Lisa Walls-Hester was amazing

Lisa Walls-Hester was amazing. Really supportive and clear, and helped a lot to keep everything moving along. Her credible relationships with lenders and knowledge really helped us to find the right lender to work with.

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Funding Friends is a trading style of Funding Friends Ltd, registered in England No. 12693505

Funding Friends Ltd is authorised and regulated by the FCA No. 935775

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Funding Friends operates as a commercial finance broker and is not a lender. Any finance or products arranged through Funding Friends is entered into entirely at your choice and is at your risk, and you are advised to consult qualified professionals outside of Funding Friends to make the right decision for your needs and circumstances. Your property or other assets may be repossessed if you do not keep up repayments on any debt secured against it. Funding Friends may receive a commission or finder’s fee for effecting introductions to lenders or third parties.