Bridging Loans For Business Owners & Property Developers

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Graham Cox - Founder & Cemap Mortgage Advisor |
Graham Cox
CeMAP Mortgage & CPSP Specialist Finance Advisor

Bridging loans can be an incredibly flexible way to finance property purchases, especially when time is of the essence. But they have many other purposes, including raising short-term funds to support your business.

Our explainer guide to bridging finance has all the details...

What is a bridging loan?

A bridging loan is quick, flexible short-term finance, typically with a 12-18 month term, secured against property or other assets. Loans start from £50,000 up to many millions of pounds.

The method of repayment, known as the exit strategy, is typically the sale or refinancing of another property, but it could also include the liquidating of other assets, such as stocks and shares.

Bridging loans came about as they were originally designed to bridge the funding gap between selling a property and buying another.

That's still a common use case, but these days there are many other reasons why a borrower might use bridging finance.

What can a bridging loan be used for?

  • Purchasing a property before the sale of your current home has been completed. For example, where your original buyer has fallen through but you don't want to lose the home you're buying.
  • To downsize to a smaller home before you've sold your current one.
  • To purchase an unmortgageable property to refurbish or renovate before selling or refinancing it.  Eg to buy a house without a working kitchen or bathroom
  • Buying property quickly at auction, where completion may be expected in 28 days and a traditional mortgage may take too long to arrange.
  • Paying an inheritance tax bill, so that probate can be granted more quickly.
  • Buying a below-market-value property quickly before refinancing it onto a standard mortgage.
  • To pay off a looming tax bill
  • For business investment.
  • To exit a development finance loan if you need more time to sell some or all of your property or move it onto long-term finance.

How does bridging finance work?

The maximum loan-to-value (LTV) is typically 75 percent, but that's the gross loan amount, which includes the lender's arrangement fee and interest charges.

After deducting the fees and charges, the net loan amount you receive often ends up at around the 65-70% LTV mark. So you'll need around a 30-35% deposit for the property purchase.

Borrow against multiple properties up to 100% LTV

Most lenders want to see the borrower put down some deposit. However, a few bridging loan providers allow borrowing up to 100% of the property purchase price, by taking security against multiple properties.

For example, the loan could be secured against both the purchase property and one or more background buy-to-let properties.

There are two important points to bear in mind with 100% LTV bridging loans.

First, as the lender is taking on additional risk, both the fees and interest rates will be more expensive.

But more importantly, should the borrower default on the loan, all the properties offered as collateral are at risk of repossession.

Per-month interest rate quotes

Unlike a regular mortgage, where the interest rate is quoted on an annual basis, bridging finance interest rates are quoted per month to reflect the short-term nature of the loan.

For example, a bridging finance quote of 0.75% per month is 9% annualised. But loans can, of course, be paid back within months if funds or alternative finance becomes available.

Paying the bridging loan off early

Many loans have no exit or early repayment charges. But typically a minimum of one or three months interest payments are required to ensure the lender receives some return.

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Open vs closed bridging finance

Most bridging loans are taken out on an open basis, meaning the finance can be repaid to the lender at any point during the term of the loan, which is typically 12-18 months.

As there is no set repayment date, these loans are riskier for the lender, so they tend to be more expensive than closed bridging finance.

Open bridging is commonly used for customers who want to:

  • buy a property but haven't yet found a confirmed buyer for the property they're selling.
  • Purchase and refurbish a property before selling it or refinancing onto a BTL mortgage.

How closed bridging works

With closed bridging, there is a pre-determined repayment date for the loan. Typically within just a few weeks or months of taking the loan out.

Interest rates are lower for closed bridging because the lender knows exactly when it will get its money back. However, missing the deadline will often incur a financial penalty.

A common use case is a borrower who has exchanged but hasn't yet completed their property sale. In this scenario, the bridge would be repaid on the completion date.

Closed bridging finance is cheaper than open bridging, because it carries less risk for the lender.

First and second charge bridging loans

Bridging finance can be taken out on a first or second-charge basis.  

When a mortgage or loan is taken out, the lender takes a legal charge over the asset, typically a property, on which the loan is secured.  

Should the borrower default, the charge ensures the lender can repossess and sell the property to get their money back.

Priority of repayment with first and second charges

The first charge is the loan first taken out and secured against the property.

The subsequent second charge loan sits behind the first charge in order of priority for repayment if the property is ever repossessed.

First-charge bridging loans have lower interest rates.

If the proceeds from repossessing and selling the property are insufficient to cover both loans, the first charge loan would be repaid before the second charge.

Where there is no existing mortgage or loan secured on the property (aka unencumbered), the borrower can take out a cheaper first-charge bridging loan.

Otherwise, a more expensive second-charge bridge can be considered.

Regulated vs unregulated bridging finance

The FCA regulates bridging loans where the security property (usually, but not always, the purchase property) is or will be used by the borrowers or immediate family to live in.

A regulated loan provides the borrower(s) with additional protection against bad advice or lack of due diligence by your advisor and/or lender.

Other bridging loans are unregulated and don't offer this safeguard.

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What are the benefits of bridging finance?

The key benefits of using bridging finance include:

Speed of arranging funds

Bridging finance can be arranged in just a few weeks, or even days in some cases. Allowing you to take advantage of sudden property investment opportunities and steal a march on other investors.


Loans can be used for any legal purpose, including:

  • business investment
  • paying unexpected tax bills
  • purchasing property abroad
  • buying a property before you've sold an existing one. I.e. to prevent chain breaks or secure a property quickly
  • to purchase and/or renovate/refurbish an unmortgageable property (ie a property without a working kitchen or bathroom).
  • to purchase land and/or finance a ground-up development.

Improving cash flow

Most bridging loans either retain or roll up interest payments, which means there are no monthly interest payments to make.

The loan, including interest and fees, is paid off by refinancing or selling an asset before the end of the loan term. The earlier you repay the loan, the less interest you pay.

Preventing a forced sale

Taking out a bridging loan to finance a property purchase can prevent you from having to slash the price of your existing property for a quick sale.

Create profitable investment opportunities

Having bridging finance in place effectively makes you a cash buyer. Being able to transact fast, you're in a strong position to complete property purchases on favourable terms, including at below-market value (BMV).

In addition, some bridging lenders will base their maximum LTV on the property's open market value (OMV). Meaning you might be able to purchase it with very little money down.

How much does bridging finance cost?

As a fast, flexible, short-term loan, bridging finance is more expensive than a traditional self-employed mortgage.

In most cases, there are no monthly payments to make because the interest is deducted from the gross loan amount and repaid when the loan is settled.

That said, some bridging lenders provide the option to service the interest payments each month, much like how you would with an interest-only buy-to-let mortgage.

There are three ways interest can be charged on a bridging loan...

Retained interest

The value of the 12 months' worth of interest payments is taken (retained) from the gross loan amount.

Effectively you're borrowing the money required to service the monthly interest payments. There are no monthly payments to make, and if the bridging loan is repaid early, the interest for the unused months is deducted from the final repayment sum.

Rolled-up interest

Also known as capitalized interest, this option is slightly more expensive than retained interest, because the interest is rolled up each month, making the overall debt bigger.

It's similar to how the interest charges on a credit card compound to increase the balance, upon which further interest is paid.

Just like with retained interest, there are no monthly payments, as the rolled-up interest for the loan term is deducted at the outset from the gross loan amount.

If the bridge loan is repaid before the end of the term, interest for the unused months is deducted from the final payment.

Serviced interest

If your income and cash flow allow, serviced interest, where you pay the interest each month, is the cheapest of the three options.

However, it can also take longer to get a bridging loan, as the lender will need to assess your income and outgoings for affordability.

As interest is paid monthly, only the original loan amount needs to be repaid when clearing the bridge.

Other fees

The interest rate on the loan is only one factor to consider when assessing the suitability of a bridging loan. Other fees can make a huge difference to the overall financing cost when comparing different deals. These fees include:

Lender arrangement fee

Typically 1-2% of the loan amount, though some lenders waive it on larger loans. Also referred to as a product or facility fee.  

Broker fee

Unlike some other brokers who charge between 0.5% and 2% of the loan amount, SEMH charge a flat fee. Your adviser will run through our broker fee with you on the initial call.

Exit fee

Not all lenders charge an exit fee, but those that do sometimes charge another one percent of the loan amount.

Legal costs

The loan applicant usually pays both the lender's conveyancing costs as well as their own.

Dual representation, where the solicitor acts for both the lender and borrower, is permitted by some providers, which can help to reduce costs.

Valuation fee

Unlike a regular mortgage, lenders usually charge the borrower for a surveyor's valuation report. To keep costs down, some providers use automated valuations for lower loan-to-value deals.

Get a bridging loan quote in minutes

For unregulated bridging loan quotes (secured on a property you don't intend to live in), compare quotes online in minutes from now using our bridging loan search tool.

For regulated bridging loans, call 0117 205 0655 or take 60 seconds now to book a call back ASAP or at a time to suit you.

You can also easily compare commercial mortgage and development finance quotes from a huge range of specialist finance providers.

Get quotes from 50+ bridging lenders in 2 minutes

Compare loans from 50+ lenders
View bridging quotes in 2 minutes. It's easy!
Rated Excellent 5/5
Five stars
LIBF Certified Practioner in Specialist Property Finance
Graham Cox - MLIBF CeMAP Mortgage Adviser & Director of Hub FS Ltd

About the author

Graham Cox is the founder of Self Employed Mortgage Hub, the trading name of Hub FS Limited.

Based just north of Bristol, SEMH is an independent, whole of market broker and a true specialist in self employed mortgages, helping business owners across the UK get great mortgage and protection deals.

Graham's market commentary and analyis is regularly quoted in the national press and media, including The Guardian, Telegraph, FT Adviser, and BBC Radio Bristol.