Compare bridging loans
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What is a bridging loan?
Bridging loans are sometimes called "bridge loans" and span a gap in your finances. This is usually when you need to pay for something but are still waiting for funds to become available from the sale of something else.
Typically, they're used by people buying a new property while waiting for the sale of their existing home to go through. A mortgage bridging loan allows them to borrow the money required for a short time.
Like mortgages, most bridge loans are a form of secured borrowing. This means you have to have a high-value asset to get one, such as property or land.
Types of bridging loan
Types of bridging loan
Open bridging loan
These have no set repayment period, which means you can decide how much to pay off and when you’ll pay it.
The loan can be repaid whenever your funds become available, for instance, when your house sells or your inheritance probate clears. These tend to charge higher interest rates because they are riskier for the lender.
Closed bridging loan
These have a fixed cut-off based on a date when you know you will have the funds required to pay back what you owe.
Closed bridge loans are usually short-term, lasting just a few weeks or months. You’ll usually have to pay a penalty fee if you miss the deadline.
These loans are typically cheaper than open bridging loans because they present less risk to the lender.
What can you use a bridge loan for?
Bridge loan financing can be used in lots of ways. These include:
Buying a property
Property development
Buy-to-let investments
Business ventures
Paying a tax bill
Divorce settlements
Pros and cons
Pros
Cons
What is a bridging mortgage?
A mortgage bridging loan is an example of a closed bridging loan. It can be used if you have exchanged contracts on a property but are waiting for your property sale to complete.
Open bridging loans are usually more expensive than closed bridging loans because they're more flexible. Whichever kind you choose, you need to find a way to repay your bridging finance.
Compare bridging loans for house purchases
Residential bridge loans
Bridging loans can be used when people are moving house as they're useful when you need a mortgage to buy a new property, but are waiting for the sale of your previous home to go through.
They are also used by property developers at auction. This is because developers often need to pay a deposit to secure their purchase at short notice.
If you have a business and need financing to move to a new office location, you might be interested in business bridging loans.
What are first charge or second charge bridge loans?
When you apply for bridging finance, the lender adds a "charge" to the property you're using as collateral. These charges determine which debts are prioritised if you can't repay a loan. If a property is seized and sold to pay off outstanding debts, a first-charge loan is settled ahead of a second-charge loan.
A first-charge loan is the first or only borrowing secured against a property. Mortgages are typically first-charge loans. But if you have no mortgage or outstanding borrowing on your property, a different kind of loan – like a bridge loan – can be set up as a first-charge loan.
Second-charge loans are used when there's already a loan or mortgage secured against the property. Second-charge lenders usually need permission from the first-charge lender before they can use the property as collateral.
There's no limit to the number of charges that can be registered against a property.
How to choose the best bridge loan
If you're thinking about taking out a bridging loan, it's best to compare offers from several providers to find a deal that suits you. Ask yourself:
How much do you want to borrow?
How much is your property worth?
How long do you need the loan for?
Do you have a mortgage on your property?
How do I apply for a bridge loan?
The following steps guide you through the process of tracking down the best rates for bridging loans and the application process.
Determine the amount you wish to borrow, and for how long
Work out the value of your property and the amount of equity you have in it
Compare bridge loans using the comparison table above
Choose between applying online or speaking to a broker
Apply for the bridge loan deal you’ve chosen. Be sure to understand all the fees and additional costs by reading the small print
How much do bridging loans cost?
Bridging loans interest rates tend to be high – often between 0.5% to 2%, and 0.84% on average – and are typically calculated on a monthly rather than an annual basis. This makes bridging loans an expensive way to borrow money.
What's more, because bridge loans typically charge monthly interest, a small change in the interest rate can have a significant impact on your overall cost of borrowing.
That said, interest is not always charged monthly. There are three different ways interest may be charged:
Monthly: you pay the interest monthly; it's not added to the original sum borrowed
Deferred or rolled-up: you pay the interest at the end of the loan; there are no monthly interest payments
Retained: you borrow the interest for an agreed period, and pay it all back at the end
Some lenders let you combine these options. For example, you could choose retained interest for the first six months and then switch to monthly interest.
Don't forget there are lots of other fees and charges that you have to pay on top of the interest. Check the costs carefully before you go ahead.
“Bridging loans are an expensive way to borrow money, which is why they're useful for specific circumstances. Make sure you have a solid exit strategy.”
What are the bridge loan fees?
Bridging finance comes with several additional fees on top of the interest you’ll have to pay.
These are:
Set-up fee: This is typically 1 to 2% of the bridge loan amount and covers the costs of setting it up. It’s also known as a facility or arrangement fee.
Exit fees: If you pay back the bridge loan early, you may have to pay an exit fee – typically around 1% to 2% of the bridging finance total. Many lenders may waive this charge.
Administration or repayment fees: This fee is paid at the end of your bridging loan to complete the necessary paperwork.
Legal fees: This is usually fixed at a set rate and covers the lender’s legal fees.
Valuation fees: The cost of having your property valued by a surveyor.
Broker fees: These may be charged if you hire a broker to compare bridging loans on your behalf.
Other fees may also be charged, so make sure you know what these are before deciding whether to take out a bridging loan.
Alternatives to bridging loans
A bridge loan is a special type of credit that enables you to borrow a large amount of money for a short period of time. They can be useful in the right circumstances, but it's also worth considering whether another type of financing might better serve your needs. Alternatives to bridge loans include:
Second-home mortgage: You could look into getting a second-home mortgage.
Remortgage: You could remortgage your current home to free up some money.
Secured loan: Here's how secured loans work.
Personal loan: You could check if a personal loan could work for your needs.
Let to buy: If you want to buy a property and the sale of your first property falls through, a let to buy mortgage could be worth considering.
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