Is Bridging Finance a Good Idea?

04-March-2025

04-March-2025 14:23

in Bridging

by Sam Hodgson

Generally speaking, bridging loans are a good idea so long as you fully understand the costs and risks weighed up against the benefits they provide to your property transaction, and ideally work with an independent adviser, such as ourselves, to walk you through the process before you commit to a loan.

Weighing up the pros and cons of bridging finance is more than simply calculating the figures and saying ‘option X is more expensive than option Y’ - bridging finance can often save you money from a broader perspective, if it allows you to take more time selling your own property and achieve a better price, for example.

At Clifton Private Finance, our experts are here to help give you the information and advice you need to make an informed choice.

We understand the advantages and disadvantages of bridging finance and how to look at your specific circumstances to make an in-depth evaluation. The following real world examples will provide you with the perspective you need to properly understand bridging finance and determine if it is right for you.

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Bridging Finance - An Overview

Bridging finance is a short-term funding product that’s designed to ‘bridge the gap’ between needing capital to buy a property and an exit strategy of either:

Refinancing through a mortgage
Selling an existing property to pay for the new one
Renovating and selling the property

However, as short-term finance, bridging finance is not without its downsides, being more expensive on paper than a mortgage and with its own set of fees and eligibility criteria.

So, how does bridging finance work in real circumstances and is it really a good idea? Read on…

4 Examples of Bridging Finance

Bridging finance is complicated. Many people have never considered bridging finance before, thinking of it as a business-style product and falling back on the familiar - traditional mortgages.

But the truth is that bridging finance is available to all potential property buyers and offers unique value that’s out of reach with a standard mortgage.

By looking at bridging finance through the lens of real world stories, much of the confusion will become clear, giving you the understanding you need to move forward.

Story 1 - Downsizing Beset with Delays

Securing a Retired Couple their Perfect Downsized Home Through Bridging Finance

John and Sarah are retired and are looking to downsize to move closer to family, especially with a new grandchild on the way. They own a family home outright, the mortgage having been paid off years before, and believe the process should be simple: sell old house, buy new one. As they are looking at new properties that are smaller and cheaper than the market value of their existing home, they anticipate few problems.

Immediately, however, they find issues. An early evaluation for their home shows that it needs some renovation work to achieve full market value. Keen to move forward, John and Sarah arrange for the work to be done and pay for it with their savings. They hope that once completed, a sale will be quickly forthcoming.

Sadly, when they put the property on the market, it takes a temporary downturn and they get no offers close to their expected value. They have a choice between accepting a very poor offer or holding on for the market to recover. They choose to hold on a few months.

A month later, however, and the buyer still hasn’t completed, giving many excuses as to the problems - none of which John or Sarah can do anything about. They’re in danger of losing the house they’ve put an offer on.

Wanting to move as soon as possible, the couple turn to Clifton Private Finance for a solution and are told about bridging finance. With a clear exit strategy of selling their existing house and a low loan-to-value, CPF are able to find a lender offering extremely competitive rates. With a view to potentially six months of bridging finance, John and Sarah look at the costs.

Capital required: £310,000
Equity to leverage: £540,000 (value of existing home) + £310,000 (value of new home) = £850,000
Loan to value (LTV): 36.5%
Interest rate on bridging finance: 0.55% per month
Interest cost per month: £1,705
Bridging finance total fees: £5,400
Estimated total cost of bridging finance for six months: £15,630

To make a proper evaluation, they consider the benefits of the bridging finance:

Able to move now, meaning more time with their family and new grandchild.
Securing the house they have chosen.
Providing the patience their buyer needs to help them complete, helping to ensure they sell at market value.
Lifting the stress and anxiety from their shoulders.

With all that in mind, John and Sarah take the bridging finance. Happily, their buyer completes just two months later and they were able to repay the bridging finance early, saving thousands in interest. The final cost of their bridging finance was £8,810 - a small price for peace of mind, a perfect new home, and irreplaceable first weeks with their grandchild.

Story 2 - Renovating to Remortgage

Bridging Finance Used for Lifelong Renovation Dreams

Amira has been living in her home for years and has let the maintenance slip, including never dealing with a serious leak that happened 18 months earlier, seriously damaging both her bathroom and the kitchen below. Her house is in a very poor condition. Her existing fixed rate mortgage, which had been on a 10-year term, is coming to an end and acting on advice from family, she wants to accomplish two things with a remortgage: getting the best rate possible and releasing enough equity to do the house renovations.

Sadly, she is rejected for a mortgage from multiple lenders, each of them unwilling to secure a mortgage against her home which is considered technically uninhabitable, due to the problems with the kitchen and bathroom.

Amira finds Clifton Private Finance and comes to us for advice. Our mortgage team find similar problems securing a mortgage, but suggest bridging finance to cover the repairs. Once the renovations are complete, Amira would be able to easily obtain a mortgage at a competitive rate, making a clear exit strategy.

With the potential power of bridging finance, Amira considers the possibilities. Not only does she want to make repairs, but she’s always wanted to extend both the kitchen and bathroom, making larger spaces that are more desirable and would greatly improve the value of her home. With the equity she has in the home, the opportunity is significant:

Current market value of Amira’s home in poor condition: £415,000
Predicted value after renovations: £500,000 to £525,000
Expected cost of repairs and renovations: £50,000
Current mortgage balance: £196,000
Equity in home (current value less outstanding mortgage): £219,000

Amira is offered £50,000 bridging finance at a rate of 0.61% per month. She considers the costs:

Bridging finance total: £50,000
Loan to value (LTV) (based on equity in home): 22.8%
Interest rate on bridging finance: 0.61% per month
Interest cost per month: £305
Bridging finance total fees: £3,900
Estimated cost of bridging finance for 9 months: £6,645

She weighs this against the benefits:

Shiny new kitchen and bathroom she’s always wanted.
New fixed rate mortgage with an estimated rate 2% to 3% lower than current rate.
Peace of mind.
Potential increase in home value of £110,000.

To Amira, it’s an obvious choice - just looking at the finances, she’s looking to make a significant overall profit on the house, and save thousands over the next few years on her mortgage. That she would also get a fantastic modern home in the bargain she sees as ‘pure icing’. She takes the bridging finance, and though the repairs take a little longer than expected, stretching the bridging finance to 12 months and costing a total of £7,560, she’s still happy.

When she gets the house surveyed for her remortgage, it is valued at £510,000. With Clifton Private Finance alongside, she remortgages successfully, paying off the bridging loan, covering all associated fees, and clearing the remainder of her existing mortgage. After all costs are accounted for, including the full £50,000 renovation spend and bridging finance, Amira makes £37,440 in profit - not to mention the icing.

Story 3 - Dan’s Divorce

Independence Bought with Help from Bridging Finance

As part of their divorce settlement, Dan and his ex-wife Megan have agreed to split their assets evenly, including the family home. It had been their plan that once the house was sold, they could each move to new properties and continue their independent lives. Unfortunately, the sale of their home has dragged on, with market forces and chain difficulties meaning it still hasn’t sold.

Dan is desperate to move out. He’s unwilling to rent, considering the extremely high cost of rental in the area, the fact that he wants to be properly settled, and that he doesn’t want to go back to being a tenant and ‘paying someone else’s mortgage’. He has found a suitable flat and wants to buy it. He turns to Clifton Private Finance for expertise on bridging finance.

Dan has a few challenges that need to be considered:

He needs Megan to agree to the bridging finance because she is equal owner on the house that will be used as security.
The existing joint mortgage will affect his available equity.
Megan’s involvement, and that she can potentially block a sale, gives some lenders concern.

To mitigate many of these concerns, the bridging team at Clifton work with Dan to prepare a document for Megan to sign that indicates her support regarding the bridging finance. While it is not a legal document, it helps smooth over some concerns and is enough for Dan to be offered the bridging finance he needs.

Dan has an effective equity of £278,000 in the existing joint home once market value and existing mortgage are considered. Dan looks at flats in the area and finds a suitable property for £211,000. He applies for £220,000 in bridging finance to cover the property and some minor renovations. This is leveraged against both his existing equity in his old home and his new purchase, resulting in a blended LTV of 45%. The costs are:

Bridging finance total: £220,000
Loan to value (LTV): 45%
Interest rate on bridging finance: 0.65% per month
Interest cost per month: £1,430
Bridging finance total fees: £5,400
Estimated cost of bridging finance for 6 months: £13,980

Dan considers the benefits:

Owning rather than renting.
Separating cleanly from Megan immediately rather than waiting months.
Peace of mind and able to focus on work and his other needs.

He also understands that even if he could have got a mortgage immediately, that too would come with interest over the six months he’s expecting to have the bridging finance for, mitigating some of the overall cost. For Dan, speed is his greatest priority - and the bridging finance is offering exactly that!

Dan gets his flat and moves in within four weeks, making his minor refurbishments immediately and moving on with his life in his new home while Megan remains in the joint property. Their old house sells five months later, a month earlier than expected. The true cost of Dan’s bridging finance totals £12,550. After repaying his half of the joint mortgage and clearing the bridging loan and associated fees, Dan is left with almost £50,000 in capital, which he puts into savings for the future.

Story 4 - Planning Permission Opportunity

Developer-Level Bridging Finance for Profit

Nigel owns a medium sized property firm looking to make a major investment. He’s researched a site that is suitable for a development of six three-bed and two four-bed houses. Unfortunately, the planning permission for a residential development is still pending and the current window to buy the site is closing. Nigel knows that he can make a significant profit by developing the houses but has to buy the land immediately. The problem is that without the planning permission in place, traditional development finance is unavailable.

Nigel knows it’s a calculated risk. If the planning is denied or takes a lot longer than expected to be granted, then he could be tied up or even forced to sell at a loss. However, he’s confident that the planning will come through within a few months and turns to Clifton Private Finance for options.

The initial calculations are as follows:

Purchase price: £950,000
Additional security (equity in existing properties): £600,000
Bridging finance required: £950,000
LTV required: 61.3%

The Clifton Private Finance team contact lenders and secure Nigel an offer of bridging finance at 0.72% per month, based on the LTV and the speculative nature of the project. While the schedule for the planning permission is unknown, Nigel presents an exit strategy through development refinancing after 9 months, with 12 months at the outside. He agrees that he will sell the land and other assets if needed to exit at 12 months if the planning doesn’t come through.

Interest rate on bridging finance: 0.72% per month
Interest cost per month: £6,840
Bridging finance total fees: £16,500
Estimated cost of bridging finance for 9 months: £78,060

Nigel reviews the costs carefully. £78,060 is a significant expense and puts the overall cost of the land well over £1 million. He’s also concerned that if planning doesn’t come through after 9 months, he’s going to have to sell the land plus refinance at least one additional property to cover the bridging exit. It’s a gamble that could cost him £100,000 - all for nothing.

However, if he doesn’t take the opportunity, he could lose out on a huge profit. The post-planning approval, the land is expected to gain over £400,000, which alone makes the cost of finance very acceptable. Furthermore, if he goes through with a full multi-home development with a gross development value of almost £4 million, the whole project would mean expansion and a huge profit for his business.

Knowing it could be a year or more before another equivalent opportunity arises, Nigel decides to take the finance and purchases the land.

Six months later, the planning permission for residential homes is granted, ahead of his schedule. Ready for the moment, Nigel and the Clifton team immediately submit the development finance application and bring in architects to finalise the build plans. Nigel exits the bridging finance at seven months, for a total cost of £64,380, and moves ahead on this important project.

Bridging Finance Pros and Cons

These four different examples highlight how bridging finance can take advantage of opportunities and solve problems, but like any other financial tool, it has its pros and cons.

PRO: Quick to put in place.
PRO: Flexible application.
PRO: LTV calculations and collateral can be drawn across multiple properties, including the target purchase.
PRO: Early exit possible to save on interest.
PRO: Application evaluation based on security, not personal or business credit history.
PRO: Exit strategy structure means no affordability checks or stress testing.

CON: Higher interest rates than mortgages.
CON: Greater fees than other finance options.
CON: Lower possible loan-to-value than mortgages.
CON: Exit strategy must be in place for application.
CON: Failure with exit strategy can result in significant costs.

When considering bridging finance, it’s vital that you consider all the possible advantages and disadvantages relevant to your circumstances. Speaking with a professional bridging broker will help.

Is Bridging Finance a Good Idea? - Clifton Private Finance Advice

In the right situation, bridging finance is an incredible product, giving you the power to move rapidly on opportunities, taking advantage of profit making circumstances. For homebuyers, it offers a flexible release from the rigidity of mortgages that can otherwise hamper your plans.

However, knowing how and when to use bridging finance takes experience and partnership with a knowledgeable broker is essential. Clifton Private Finance are here as your bridging partner, whether you’re a homebuyer looking to downsize, a private landlord looking to get a good deal at auction, or a large scale developer expanding a business.

Our bridging team have established relationships with the full range of UK bridging finance lenders. We will work to secure you the best rates and highest levels of buying power. Contact us today to speak to a specialist and see how bridging finance can work for you.