Bridging Loan Guide: Costs, Risks & When to Use One

What Is a Bridging Loan?

A bridging loan is short-term secured finance (typically 1-18 months) used to "bridge" a gap in funding. Most commonly used when buying a new property before selling your current one, or for property renovation projects.

How Much Do They Cost?

• Interest rate: 0.5-1.5% per month (6-18% annually)
• Arrangement fee: 1-2% of the loan
• Valuation fee: £300-1,000
• Legal fees: £1,000-2,000
• Exit fee: 0-1% of the loan

On a £200,000 bridging loan for 6 months at 0.8%/month: interest = £9,600, arrangement fee = £3,000, total cost ≈ £14,600.

Open vs Closed Bridge

Closed bridge: You have a fixed repayment date (e.g., your house sale completes on a set date). Lower rates because less risk to the lender.

Open bridge: No fixed repayment date, just a maximum term. Higher rates due to more uncertainty.

When Bridging Makes Sense

• Buying at auction (28-day completion required)
• Property chain about to break
• Renovation projects before refinancing to a standard mortgage
• Commercial property purchases
• Buying before selling to avoid losing a property

When to Avoid

Don't use bridging if: you have no clear exit strategy, you can't afford the monthly interest, or cheaper alternatives exist (remortgage, personal loan, family help).

Exit Strategy

Every bridging loan needs a clear exit strategy. The most common are: selling another property, refinancing to a standard mortgage, or selling the bridged property after renovation.