Bridging loan rates are a crucial factor to consider when seeking quick short-term finance, particularly for property-related transactions. They help “bridge the gap” between buying a new property and selling an existing one or cover financial gaps in emergency situations. But bridging loans come with high interest rates and fees so you need to shop around for the best. This guide goes into the world of bridging loans and explains the features, types, costs and alternatives.
Years of experience
A bridging loan is a short-term secured loan that allows you to borrow money for property purchases or other urgent needs. These loans are repaid within a few months to a year when you’ve sold another asset, secured long-term finance, or completed a sale.
Secured Loan: Collateral required, property or land.
Fast Approval: Funds can be arranged in days.
High Costs: Interest rates and fees are much higher than normal loans.
Bridging loans are most commonly used in property transactions but can also be used for business cash flow gaps, auction purchases or property development projects.
Bridging loans aren’t for everyone but are particularly suited for individuals or businesses in the following situations:
Property Buyers: To buy a new property before selling an existing one.
Auction Purchases: To get funds quickly when buying properties at auction.
Property Developers: To finance renovation or development projects until longer term finance is available.
Divorce Settlements: To cover costs during asset division.
Business Owners: To cover temporary cash flow gaps or secure commercial property.
Knowing the types of bridging loans is key to choosing the right product for you. Here are the main types:
Repayment Flexibility: No fixed repayment date, but repayment expected within 12 months.
Best For: Situations with uncertain timelines, such as delayed property sales.
A closed bridging loan is a type of short-term financing with a fixed repayment date, linked to a property sale or other guaranteed event.
Fixed Repayment Date: Linked to a property sale or other guaranteed event.
Best For: Borrowers with a clear exit strategy and fixed repayment date.
No Existing Mortgage: The loan is the first charge against the property.
Best For: Properties with no existing finance.
Existing Mortgage: Secured against a property with an existing mortgage, second in repayment priority.
Best For: Borrowers needing extra funds without changing their primary mortgage.
Bridging loans are expensive, and the interest rate can vary greatly depending on the lender, loan amount, and borrower circumstances.
Interest Rates:
0.4% to 1% per month (4.8% to 12% per annum).
Rates vary with Bank of England base rate and lender risk assessment.
Arrangement Fees:
1-2% of the loan amount.
Exit Fees:
Charged when the loan is repaid, 1-2% of the balance.
Other Fees:
Legal, valuation and admin fees can add up quickly.
Monthly interest payments can impact affordability so consider rolled up interest if cash flow is an issue.
Each lender has their own criteria but generally:
Loan-to-Value (LTV): A common loan to value ratio is 70-75%, but higher LTVs are available with additional security.
Exit Strategy: A clear plan to repay the loan, e.g. selling a property or refinancing.
Security: Property or land must be used as collateral.
Creditworthiness: Some lenders are flexible with credit scores but a good credit history will improve your chances and reduce costs.
Work Out What You Need: How much and for how long.
Value Your Property: Get a current value and equity in your property.
Compare: Use comparison tools or a broker to compare bridge loans and find the best deals.
Apply: Submit an application with the required documents, including your exit strategy.
Using an experienced broker will make the process easier and get you better terms.
Bridging loans offer several compelling benefits that make them an attractive option for many borrowers. One of the most significant advantages is the quick access to finance. Unlike traditional mortgages, which can take weeks or even months to process, bridging loans can be arranged in a matter of days. This speed is particularly beneficial for time-sensitive property transactions, such as auction purchases or urgent property acquisitions.
Another advantage is the flexibility that bridging loans provide. They can be used for a variety of purposes, including purchasing a new property before selling an existing one, investing in a buy-to-let property, or even acquiring commercial property. This versatility makes bridging loans a valuable tool for both individuals and businesses.
Bridging loans also offer high loan-to-value ratios, often up to 75% or more. This means borrowers can access a larger amount of finance compared to traditional mortgages, which can be crucial for significant property investments. Additionally, some bridging loans offer the option to defer monthly interest payments until the end of the loan term. This feature can be particularly useful for borrowers who need to manage their cash flow effectively during the loan period.
While bridging loans have their advantages, they also come with several drawbacks that borrowers need to consider. One of the primary disadvantages is the high interest rates. Bridging loans typically have higher interest rates than traditional mortgages, making them a more expensive option in the long run. This higher cost can be a significant factor for borrowers to consider.
In addition to high interest rates, bridging loans often come with substantial fees. These can include arrangement fees, exit fees, and broker fees, which can add up quickly and increase the overall cost of the loan. Borrowers need to be aware of these additional costs when considering a bridging loan.
Another risk associated with bridging loans is the potential for repossession. If the borrower is unable to repay the loan within the agreed timeframe, the lender may repossess the property used as collateral. This can result in significant financial losses and should be a key consideration for anyone thinking about taking out a bridging loan.
Furthermore, bridging loans are not widely available from high street banks, which means borrowers may need to work with specialist lenders or brokers. This limited availability can make it more challenging to find the right loan and lender. Lastly, the bridging loan market is largely unregulated, which can increase the risk of dealing with unscrupulous lenders. Borrowers must exercise caution and work with reputable lenders or brokers to ensure they get the best deal possible.
In conclusion, while bridging loans offer quick access to finance and flexibility, they also come with high costs and risks. It’s essential to carefully weigh the pros and cons and work with a reputable lender or broker to navigate the bridging loan market effectively.
Bridging loans are not the only short term finance option. Here are some alternatives:
Personal Loans:
A personal loan can provide up to £50,000 based on income and credit score.
Lower interest rates than bridging loans but smaller loan amounts.
No risk to your home, but maintaining monthly repayments is crucial.
Peer-to-Peer Loans:
Borrow from individual investors via online platforms.
Competitive rates but slower approval times.
Remortgaging:
Release equity from your current property.
Takes longer than bridging loans but lower rates.
Other Secured Loans:
Similar to bridging loans but for longer terms.
High Street Banks: Offer bridge loans but selectively and with strict criteria.
Specialist Lenders: More flexible terms and competitive rates including:
United Trust Bank
Together Money
Masthaven Bank
Precise Mortgages
Specialist lenders cater for niche needs, e.g. bad credit or complex property types.
Interest Rates: 0.4%-1% per month.
Set-Up Fees: 1-2% of the loan.
Exit Fees: 1-2% upon repayment.
Other Fees: Valuation, legal, and broker fees.
A good broker will help you with these costs and get you better deals.
Bridging loans are great for property transactions:
Buying Before Selling: Get your new home while you wait for your current property to sell.
Auction Purchases: Get funds quickly to meet auction deadlines.
Property Development: Finance renovations or construction projects.
When using bridging loans for property transactions, it’s crucial to compare bridging loans to ensure you get the best terms and rates. These loans give you short term cash while you put a long term plan in place.
High street banks like Lloyds and Barclays may offer bridge loans but they are for existing customers with good credit profiles. Many borrowers go to specialist lenders for more flexibility and quicker approvals.
Specialist lenders are more flexible than banks, offering:
Competitive Rates: Lower rates for good LTV ratios and exit strategies.
Flexible Criteria: Will lend on non-standard properties or bad credit.
Personalised Solutions: Bespoke service and terms.
FCA regulated.
When a borrower’s personal home is used as security.
Not FCA regulated.
For commercial properties or investments.
Make sure you know the regulatory status of your loan before you proceed.
Flexibility: Can they meet your needs?
Costs: Interest rates and fees.
Exit Terms: Do the repayment terms match your exit strategy.
A good property finance expert will help you through the process.
6-12 months.
Only when a personal home is used as security.
Complete the form to arrange your initial free phone consultation with our bridging loan specialist:
