Bridging finance is a short-term loan designed to provide quick access to funds when timing is critical. It is commonly used to bridge the gap between buying a property and securing longer-term finance or completing a sale.
Whether you’re purchasing a property at auction, buying before selling your current home, or funding a refurbishment project, bridging finance can offer a flexible solution when traditional mortgages aren’t suitable.
In this guide, we’ll explain how bridging finance works, when it may be appropriate, the different types of bridging loans available, the costs involved, and the factors to consider before applying.
What Is Bridging Finance?
Bridging finance is a short-term secured loan, typically arranged for between one and 24 months, although the exact term depends on the lender and your circumstances.
Unlike a standard residential mortgage, bridging finance is intended to provide temporary funding until a planned repayment event—known as an exit strategy—takes place. This could include:
- Selling a property
- Refinancing onto a standard mortgage
- Receiving funds from another source, such as an inheritance or business asset sale
Because bridging finance is designed for short-term borrowing, interest rates and fees are generally higher than those associated with traditional mortgages.
How Does Bridging Finance Work?
A bridging finance is usually secured against a property or land.
Once approved, funds can often be released more quickly than with a conventional mortgage, subject to legal work, valuation requirements and the lender’s underwriting process.
Borrowers then repay the loan when the agreed exit strategy is completed.
For example:
Sarah agrees to buy a new home before her existing property has been sold. Rather than losing the purchase, she uses bridging finance to complete the transaction. Once her previous home is sold, she repays the bridging loan in full.
Common Uses for Bridging Finance
Bridging finance may be suitable in a variety of situations, including:
Buying Before Selling
Many homeowners find their next property before selling their existing one. Bridging finance can provide temporary funding to complete the purchase while waiting for sale proceeds.
Property Auctions
Auction purchases often require completion within 28 days. Traditional mortgage applications may not complete within this timeframe, whereas bridging finance can sometimes be arranged more quickly.
Property Refurbishment
Some lenders may be unwilling to offer a standard mortgage on properties requiring significant renovation. Bridging finance may provide funding while refurbishment work is completed before refinancing.
Chain Breaks
If a property chain collapses shortly before completion, bridging finance may help keep a purchase moving while alternative arrangements are made.
Commercial Property Purchases
Businesses and investors sometimes use bridging finance when purchasing commercial premises or land while arranging longer-term finance.
Types of Bridging Finance
Closed Bridging Finance
A closed bridging loan has a defined repayment date, often because contracts have already been exchanged on a property sale or another confirmed repayment source exists.
Lenders may view this as presenting lower risk due to the agreed exit strategy.
Open Bridging Finance
Open bridging finance does not have a fixed repayment date but still requires a realistic exit strategy. Borrowers should understand the lender’s maximum loan term and repayment expectations before proceeding.
Regulated and Unregulated Bridging Finance
Some bridging loans are regulated, while others are not.
Generally:
- Bridging finance secured against a property that you or an immediate family member will live in is typically regulated.
- Bridging finance for many investment or commercial purposes may be unregulated.
The regulatory status depends on the circumstances of the borrowing and should be confirmed before proceeding.
How Much Can You Borrow?
The amount available depends on factors such as:
- The property’s value
- The loan-to-value (LTV)
- Your exit strategy
- The type of property
- The lender’s criteria
Many lenders offer borrowing based on a percentage of the property’s value, although limits vary.
What Does Bridging Finance Cost?
The overall cost of bridging finance can include:
- Monthly or retained interest
- Arrangement fees
- Valuation fees
- Legal costs
- Administration fees
- Broker fees (where applicable)
- Exit fees (if charged by the lender)
The total cost varies between lenders and individual circumstances. Comparing the overall cost of borrowing, rather than focusing solely on the interest rate, can help you make a more informed decision.
What Is an Exit Strategy?
An exit strategy is your planned method of repaying the bridging loan.
Examples include:
- Selling a property
- Refinancing onto a longer-term mortgage
- Selling another asset
- Receiving an agreed source of funds
Lenders will usually expect borrowers to demonstrate a credible exit strategy before approving a bridging loan.
Advantages of Bridging Finance
Depending on your circumstances, bridging finance may offer several benefits:
- Faster completion than some traditional mortgage applications
- Flexible short-term borrowing
- Suitable for time-sensitive property purchases
- Can assist with auction purchases
- May support refurbishment projects before refinancing
However, approval times, borrowing limits and loan terms differ between lenders and individual applications.
Potential Risks to Consider
Bridging finance is not suitable for every borrower.
Before proceeding, it’s important to understand:
- Interest costs can be higher than standard mortgages.
- Fees can increase the overall borrowing cost.
- Delays to your exit strategy may result in additional interest charges.
- If you cannot repay the loan, your property may be at risk because the loan is secured against it.
Borrowers should carefully consider whether bridging finance is appropriate for their circumstances.
Bridging Finance vs a Traditional Mortgage
| Bridging Finance | Traditional Mortgage |
| Short-term borrowing | Long-term borrowing |
| Often used for time-sensitive purchases | Typically used for long-term home ownership |
| Usually higher interest costs | Generally lower interest rates |
| Requires a clear exit strategy | Repaid over an agreed mortgage term |
| Can be arranged more quickly in some cases | Usually involves a longer application process |
Is Bridging Finance Right for You?
Bridging finance can be an effective short-term funding solution where speed and flexibility are important. However, because it is secured borrowing and can involve higher costs than conventional finance, it is important to understand both the benefits and the risks before making a decision.
If you’re considering bridging finance, comparing products from multiple lenders and obtaining advice where appropriate can help you determine whether it meets your needs.
How Quick Funds Can Help
Quick Funds works with a network of specialist lending partners who offer a range of bridging finance solutions across the UK.
If you would like to explore your options, our partners can discuss available products, explain the features and risks of different types of bridging finance, and, where appropriate, provide regulated advice based on your individual circumstances.
Frequently Asked Questions
How long does bridging finance last?
Most bridging loans are intended for short-term borrowing, commonly between one and 24 months, depending on the lender and the purpose of the loan.
Is bridging finance expensive?
Bridging finance generally costs more than a traditional mortgage because it is designed as a short-term funding solution. The total cost depends on interest, fees, the loan term and the lender’s pricing.
Can I repay a bridging loan early?
Many lenders allow early repayment, although some may charge early repayment or exit fees. Always check the terms and conditions before proceeding.
Can I get bridging finance with poor credit?
Some lenders may consider applications from borrowers with adverse credit histories, although eligibility, pricing and lending criteria vary.
Do I need a deposit?
Not always. The amount you can borrow depends on the property’s value, any existing borrowing secured against it, and the lender’s loan-to-value requirements.
Final Thoughts
Bridging finance can provide valuable short-term funding for property purchases, renovations and other situations where timing is important. Understanding how it works, the costs involved and the importance of a clear exit strategy can help you decide whether it may be suitable for your circumstances.
Before entering into any financial agreement, ensure you understand the terms, costs and risks involved, and consider obtaining advice from a suitably qualified professional where appropriate.
Your property may be repossessed if you do not keep up repayments on a loan secured against it.
