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How much does a bridging loan cost?
Bridging loans typically cost 1-2% of your loan size, charged as an arrangement fee by your lender.
You also usually pay:
- A monthly interest rate
- Valuation or survey fees
- Legal fees
- Broker fees
- Other admin fees, such as drawdown and redemption fees
This might seem like a lot, but on the whole, bridging loans can cost less than you might expect - especially if you're using one for the right reasons.
In fact, if a bridging loan secures your property purchase at the best price because you can act fast, it can even save you money.
And the upside is that you secure the property - which for many buyers is invaluable.
Bridging loan costs come through several fees and admin charges. We'd like it to be less complicated, but we can't reorganise the entire property finance industry.
However
It's a longstanding myth amongst first-time bridging borrowers that short-term property finance is woundingly expensive.
We're not here to twist your arm: no responsible broker will persuade you to take on borrowing that you can't afford.
So, here's our straightforward guide to everything you need to know about how much a bridging loan costs.
Written by: Sam O'Neill & Sam Hodgson
Why would you take out a bridging loan?
We have many clients for whom bridge finance has been the best, if not the only solution - and they haven't resented the costs. And they aren't all multi-million-pound developers with bottomless pockets.
Particularly for clients who are downsizing and have built up a sizeable amount of equity on a home they're selling (or who own it mortgage-free) and have found their dream home that they can't miss out on - the set-up fees and interest cost of a bridging loan is money well spent on the home they plan to live in for ten years or more.
And if you're working your way up the property ladder, hoping to buy a property cheap at auction, or taking on a project that needs a lot of renovation work, bridging finance may be your best and only option to get short-term finance set up in time.
Or, it could buy a house that's considered "unmortgageable" by mainstream lenders.
For more details, watch our video: Bridging Loans Explained: Costs, Timescales, Examples, & How To Get One.
Sam O'Neill
Head of Bridging
Let us do all the hard work of finding the right bridging lender for your circumstances.
We secure bridging finance for applications of all types, and we negotiate competitive lending to meet your needs and timescale.
And while you're here, read our complete guide to bridging loans.
So, what are the costs of a bridging loan?
Bridging loan interest rates
This is the top-line loan cost you'll be looking at first. This is an "it depends" cost: see below for the factors determining the monthly interest rate you're offered.
Bridging finance interest is quoted as a monthly rather than an annual rate. This isn't to disguise the rate - it's because you may not have the short-term loan for as long as a year. And after the minimum term of the first month, interest is calculated daily. You can pay back your bridging loan anytime, and you'll only pay interest up to the day you repay.
Rates from: Downsizing/Upsizing Releasing Funds From Your Home Short-Term Lease Finance Auction Purchase As at 3rd January 2024 Rates from: Light & Heavy Refurb Finance For Unmortgageable Properties Land Purchase with planning As at 3rd January 2024 Rates from: Up to 80% LTV Minimum Loan £500k Minimum net income £100k As at 3rd January 2024 Thank You for your interest - please complete the form below and a member of our team will be in contact.Residential
Buying Before Selling?
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Development & Refurb
Fast Finance
0.50% pm
Residential
Large Bridging Loans
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6 things that affect your bridging loan interest rate:
1. Your loan-to-value ratio (LTV)
This is the ratio of the loan amount you need concerning the value of your property. The lower the ratio, the lower the interest rate you pay. For example, a 50-60% LTV will get you a much lower interest rate than a 75% loan, and a 100% bridging loan would be the most expensive.
Interest rates are linked to the Bank of England base rate. But interest rates also vary from lender to lender depending on the types of properties and clients that they're comfortable working with.
An experienced mortgage broker with good connections in the industry will take your application to the lender who is best equipped to consider your circumstances most favourably and for whom you'll fit their specific bridging loan criteria.
2. How much do you want to borrow, and for how long
Suppose you've already got your "exit" strategy in place (for example, a buyer has already made you an offer on the property you're selling). You're confident you won't need your bridging loan for the entire period. In that case, your broker may be able to find you a lower rate.
3. Condition of the property and what you're planning to do
The riskier the proposition, the higher your quoted interest rate may be. A bridging adviser will take down all the details of your plans and forward your case to the best lenders for your case.
Related: Our guide on how to compare the best bridging loans
4. Is it a regulated or unregulated loan
If the property is your home, a bridging loan is regulated by the Financial Conduct Authority to protect you.
If somebody else lives in the property that isn't a family member, you'll need an unregulated bridging loan.
There are fewer regulated lenders in the market than unregulated, so your lending options may be more limited.
But because there are more hoops to jump through with a regulated bridge, a lender's money is safer for your protection, and the rates are generally lower than unregulated loans.
Learn more about unregulated and regulated bridging loans.
5. Location of the property
If it's in a remote, rural location, a lender may feel that it could be trickier to sell or get a mortgage to repay your bridging loan, so the interest rate could be higher to reflect that risk.
An awkward location could also make your property development plans more difficult and time-consuming.
Regrettably, northern Scotland and rural North Ireland properties are harder to find finance for.
6. Your credit history
In general, bridge finance terms are less focused on your financial circumstances than on the property's value.
If you have a bad credit rating, you may still get bridging finance (when you might struggle to get a mortgage), but it could be at a slightly higher loan rate.
For more information, read our full guide to bridging loan interest rates.
How is interest charged on a bridging loan?
If you have sufficient cash flow on an unregulated loan, you can choose to pay the interest monthly. Or, you can roll it into the total loan to be repaid at the end of your term.
For regulated loans, all interest is paid at the end when you repay the total bridging loan (to minimise monthly outgoings for a homeowner who's also paying a mortgage).
You will need to know if your interest is charged as rolled-up or retained interest. Rolled-up interest is compounded, but it is cheaper than the retained interest, which is charged at a rate assuming you will have your loan for the full term.
The best interest type for you will depend on your financial circumstances and what you're looking to do - getting bridging advice can ensure you get the right loan for you.
Related: Check out our full guide to bridging loan interest rates and how it works.
5 bridging lender fees you could be charged
1. Facility Arrangement Fees
A facility fee of 2% is standard across the mortgage industry. It may be 2% of either your net or gross loan amount. A gross fee will be more expensive, but most of the lenders we use at Clifton Private Finance charge their fee on the net loan.
2. Loan Drawdown Fees
Lenders also charge a loan drawdown fee (sometimes called an assessment fee or an admin fee), usually about £295 but can vary depending on the number of properties involved.
3. Redemption Fees
There's also a redemption fee when your loan is repaid, which covers the cost of removing the legal charge from your property (or properties). A redemption fee for a bridging loan is usually around £120.
4. Exit Fees
Some lenders also charge an exit fee of about 1.25% when your loan is repaid – at Clifton Private Finance, we generally avoid working with these lenders.
This is usually only £25 but serves as an additional cost nonetheless.
Bridging loan survey fees
They are also known as valuation fees.
Like with a mortgage, your bridging lender needs to be assured of the market value of the property their loan is secured against, and you'll have to pay for the lender's valuation costs.
Surveyors charge their fees on a sliding scale depending on the value of the property and the amount of work they're assessing that needs to be done.
Survey costs could range from £265 for a property costing £100K that needs light refurbishment but could be considerably higher for a more complex property valuation.
Bridging loan legal fees
Bridging loans are recorded as a "charge" against a property title, so legal costs are involved for you and the lender.
And again, lenders pass on their legal fees to you as the bridging loan applicant.
An average cost of a bridging lender's legal fees would be around £850 + VAT for a property valued at about £250K.
Bridging broker fees
Finally, there's your bridging adviser's fee.
We typically charge a flat fee of £995 for setting up the finance on your behalf, but this can vary.
If you've had the experience of looking for the best deal on a mortgage and then handling the paperwork involved in the application, you'll consider this money well spent when you apply this context to securing and pushing through a bridging loan.
When do I pay the charges for a bridging loan?
You'll need to pay the following bridging loan fees upfront:
- The survey fees
- The legal fees
- The broker's fee
Everything else, including the interest, can be rolled into your loan and paid at the end of your term.
How can I get a cheaper bridging loan?
- If you're buying a property before selling one that you already own and need to bridge the gap, it may be possible to secure your bridging loan against both properties to get a better interest rate. Or, providing more security as a bridging loan deposit could help.
- A good broker will look at all the possible scenarios before they start approaching lenders.
- Some of the bridging lenders we work with provide "dual representation" on their legal work, which means you don't have to pay for a solicitor of your own as well as theirs - we use these lenders when we can, as long as their rates and other set up costs are cheaper for you too.
- Some lenders are willing to do a "desktop valuation" (or AVM: automated valuation model) if your loan to value is low (less than about 50%) or they're familiar with the type of property you have. This will save the cost of sending out a surveyor.
Use our bridging loan calculator
Our bridging calculator can get an approximate idea of what a bridging loan might cost you. But keep in mind that a mortgage broker will be able to fine-tune your expected charges to your circumstances:
Get a copy of our FREE GUIDE to bridging loans
Just fill out our enquiry form at the bottom of the page and put Bridging Loan Guide in the Message box: we'll send you our Complete Guide to Bridging Loans by email or post.
Contact us
If you're looking to secure a bridging loan, you may need the help of a specialist bridging broker. A bridging broker can use their network of lenders and market expertise to find you the best deal on the market.
A bridging loan broker can offer comprehensive advice on your options and will help you find the most cost-effective solution. In the right circumstances, a bridging loan can be a quick and affordable means to secure your property.
At Clifton Private Finance, we have an award-winning team of bridging brokers who can guide you through the process.
If you want to discuss how bridging finance could work for you, call us, and an adviser will be able to discuss your situation in detail.
Call us on 0117 959 5094 or book a free consultation below.
FAQs
Yes, a valuation is typically required for a bridging loan in the UK. Since bridging loans are often secured against a property or other valuable assets, lenders will want to assess the market value of the property being used as security. This helps the lender determine how much deposit they want you to provide based on the value and condition of the property. You can borrow up to £25m with bridging finance, but it’s typically capped at about 80% of the value of the property you’re using as security. It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance. Some lenders have a maximum limit of over £1 million, while others may specialize in smaller loan amounts. Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan. Yes, you typically need a 20-40% deposit for a bridging loan. It can be possible to get a bridging loan without a deposit (a 100% bridging loan), but you’ll need other assets in the background to secure the loan against, and more stringent criteria and higher costs could apply. Yes, it is possible to get a 100% bridging loan (also known as a 100% LTV bridging loan), but it is rare. This means that you won’t need to put down a deposit and can borrow the full value of your property. However, the criteria for these loans can be hard to meet, and you’ll need to provide additional assets as security for your loan. Interest rates and fees can also be higher to compensate. While using bridging finance doesn’t technically make you a cash-buyer, it can allow you to act like one. Mortgages take months to process, often leading to an ‘onward chain’ where all parties involved need to wait for funds to be transferred. Bridging finance can usually be accessed a lot quicker than mortgages so you can bypass the onward chain, giving you an advantage over other buyers and being attractive to sellers. Bridging loans typically have a term of 12 months, but some lenders are willing to stretch their terms to 18 months, or even 2 –3 years depending on the case. Terms longer than 2 years will usually only be considered for specific cases. Yes, you can use a bridging loan to pay Stamp Duty. This amount could be covered by a bridging loan, providing you have a way to repay the additional borrowing amount to your lender. Yes, bridging loans are safe when they’re used in the right circumstances with a solid repayment strategy. However, we recommend speaking to a qualified advisor, like our brokers at Clifton Private Finance, before you take out a product. The main factors to consider with bridging finance are that the full loan amount will usually need to be repaid within a year, and like a mortgage, it is secured against a property as collateral. This means that in the case that you aren’t able to repay your bridging loan, your property would be at risk of repossession. But with a watertight exit strategy, bridging finance can be an efficient way to secure property quickly. Bridging loans are designed to be short-term so there’s no maximum age limit when applying for a bridging loan. This does depend on the lender, as some bridging lenders do have an upper age limit, but there are lenders on the market who offer bridging loans for borrowers aged 70 and over. Bridging loan interest rates usually range between 0.45% - 2% per month, depending on the case and the market rate. Unlike mortgage interest rates, bridging loan interest is calculated monthly instead of yearly. This is because bridging loans are short-term and, in many cases, repaid within a year. Bridging loans can be arranged without early repayment penalties, so interest is calculated monthly to ensure you only pay interest on the months you have the loan for. Unfortunately, mainstream banks in the UK don’t offer bridging loans. This means that if you’re looking for a bridging loan, you won’t be able to get one using a lender you’d find on the high street. There are a variety of specialist lenders that offer bridging loans, but because these lenders are smaller and more niche, you may need a bridging broker to access them. Banks typically charge two main fees when taking out a bridging loan – arrangement fees and interest. But there are other costs to consider such as valuation fees, broker fees and administration fees. Costs can vary from lender to lender, and will also depend on what your bridging loan is for (e.g., residential or commercial purposes.) Arrangement fees are what the lender charges you to take out the loan and can range between 1.5 - 3% of your overall loan. Bridging loan interest, on the other hand, is calculated monthly. This can catch borrowers out who may be expecting an Annual Percentage Rate (APR) like with a mortgage. Yes, you can convert a bridging loan to a mortgage through refinancing, and it is common among borrowers who use bridging finance to buy residential properties. However, whether or not you’ll be able to refinance to a mortgage is dependent on your financial circumstances, the lender, and the property you’re planning to buy. It’s important to be sure that refinancing is a viable repayment option before you take out a bridging loan on a residential property. Yes, bridging loans are typically more expensive than mortgages. Bridging loan interest rates can be much higher than a mortgage, and are calculated and displayed as monthly rates instead of the usual annual percentage rate (APR) that you’ll see on a mortgage. However, bridging loans are a short-term solution, and you’ll only pay interest on the months you’ve borrowed money for – and you can repay early without any charges (for most loans). There are many circumstances where bridging loans are an affordable option and a means to an end - for borrowers that need to finance a property purchase quickly, it may be the only option available. The two most common ways to pay a bridging loan are to sell a property or refinance to a mortgage. You may also need to ‘service’ the loan through the term, which means paying the interest monthly. However, you can opt to ‘roll up’ your bridging interest to be repaid at the end along with the capital. There are also other ways to repay a bridging loan, such as selling a business or even using money from an inheritance. The method in which you pay your bridging loan can be flexible, just as long as it is clear in your application that you have a surefire way to repay your loan when the terms are up. In most cases, a bridging loan will require a minimum deposit of 25%. However, the minimum can vary depending on the lender and the specific circumstances of the loan itself. Generally, bridging loans are secured against a property or other valuable assets, and the deposit required is often expressed as a percentage of the property's value, known as the loan-to-value ratio. In some cases, 0% deposit bridging loans are an option, but only if you have other property or assets in the background to provide additional security. No, typically, you’ll repay a bridging loan in one chunk at the end of the loan term. Bridging loans are a form of short-term finance and will usually need to be repaid within 12 months, but there can be room for flexibility. In some cases, borrowers may be required to make monthly interest payments. This means that each month, you would pay the interest accrued on the loan amount while the principal amount remains outstanding until the end of the loan term. But usually, the interest is "rolled up" or added to the loan balance and paid with the rest of the loan at the end of the term. This option can help protect your cashflow so you can spend it on moving costs or refurbishments, for example. Bridging loans can be arranged in as little as 7 working days. However, it depends on the complexity of the bridge loan and your specific circumstances. It may also be more expensive for you to rush an urgent application through – but not impossible. Bridging loans are a popular option for borrowers who are under time constraints, such as buying a property at auction or breaking a chain. The key factors lenders tend to consider are: Security - Bridging finance is usually secured against property or other valuable assets. Lenders will assess the value and marketability of your security. Exit Strategy - Lenders will want to understand how you plan to repay your bridging loan. In most cases, this is selling your old property, selling the new property (flipping), or refinancing with a long-term mortgage. Loan-to-Value (LTV) Ratio - Lenders consider the loan amount compared to the value of the property being used as security as a percentage. The LTV ratio can vary, but most lenders will have a maximum of 60-80% LTV. Remember, the criteria for obtaining bridging finance in the UK can vary depending on the lender and your circumstances.
Do you need a valuation for a bridging loan?
How much can you borrow with bridging finance?
Do you need a deposit for a bridging loan?
Can I get 100% bridging finance?
Does a bridging loan make you a cash buyer?
What is the longest bridging loan term?
Can I use a bridging loan to pay stamp duty?
Are bridging loans safe?
Can an 80 year old get a bridging loan?
What is the monthly interest rate on a bridging loan?
Do banks still do bridging loans?
How much do banks charge for bridging loans?
Can you turn a bridging loan into a mortgage?
Is a bridging loan more expensive than a mortgage?
How are bridging loans paid?
What is the minimum deposit for a bridging loan?
Do you pay monthly payments on a bridging loan?
How long does it take for a bridging loan to come through?
What is the criteria for bridging finance?
