What Is a Bridging Loan?

A bridging loan is a short-term secured loan designed to cover a gap. The gap is usually time: between buying one property and selling another, between identifying an opportunity and arranging long-term finance, or between needing funds now and a liquidity event that is weeks or months away. Bridging loans are expensive relative to long-term finance, but they can be arranged in days and they solve problems that no other product can.

What bridging loans are used for

The most common use is property purchase where standard finance would not move fast enough. An auction purchase typically requires completion within 28 days. No commercial mortgage can be arranged in that timeframe. A bridging loan can.

Other common uses include:

• Buying a new property before an existing one sells

• Refurbishing a property to make it mortgageable before refinancing onto longer-term finance

• Funding a commercial property purchase while a commercial mortgage application completes (see our guide to what is a commercial mortgage)

• Raising capital quickly against an unencumbered property when other routes would take too long

• Development finance for light refurbishment projects

Bridging is a specialist tool. Used correctly, it provides speed and flexibility unavailable from any other form of finance. Used incorrectly, it is expensive and carries real risk if the exit does not materialise on time.

Open vs closed bridges

A closed bridge has a fixed repayment date, typically tied to a known event such as confirmed exchange on a property sale or the drawdown of a mortgage that has already been agreed. Because the exit is certain, closed bridges attract lower rates.

An open bridge has no fixed repayment date but must be repaid within the agreed maximum term, typically 12 months. The exit is intended but not yet contractually fixed. Lenders still require a credible exit strategy, but accept more flexibility on timing. Open bridges are more common in practice and carry slightly higher rates to reflect the uncertainty.

First and second charge bridging loans

A first charge bridging loan is secured against a property with no existing mortgage, or where the bridging lender takes the primary position. First charge loans carry lower rates because the lender has first claim on the asset if the borrower defaults.

A second charge bridging loan sits behind an existing first charge, such as a mortgage. The bridging lender's claim ranks below the first charge holder, which increases their risk and is reflected in higher rates and stricter criteria. For a broader explanation of how first and second charges work in secured lending, see our guide to how secured business loans work.

How much can you borrow?

Bridging loans in the UK typically start at around £25,000 and run into the tens of millions for larger transactions. The amount available is driven by the value of the security and the LTV the lender will advance.

Standard bridging lenders work to a maximum LTV of 70% to 75% on most property types, with some going to 80% for strong applications. Terms typically run from one month to 24 months, though most transactions complete well within 12 months.

What does a bridging loan cost?

Bridging loan rates are expressed monthly rather than annually, which can obscure how expensive they are. Current rates in the UK range from around 0.55% per month for the strongest first charge applications to 1.5% or more for higher-risk deals. Most standard transactions price between 0.65% and 0.95% per month.

To put that in context, 0.75% per month equates to approximately 9% per annum in simple interest terms. On a £500,000 loan held for nine months, the interest cost alone would be around £33,750 before fees. On top of interest, there are arrangement fees (typically 1% to 2% of the loan), valuation fees, legal fees on both sides, and sometimes an exit fee. The total cost of a bridging loan is materially higher than the interest rate suggests. For a full breakdown, see our guide to bridging loan rates and costs explained.

The exit strategy

The exit strategy is the plan by which the bridging loan will be repaid. Lenders require a credible exit before they will approve a facility, and the quality of that exit directly affects both the rate you are offered and the likelihood of approval.

The two most common exits are sale of the property and refinancing onto longer-term secured finance. Refinancing onto a commercial mortgage is the natural exit for many business property transactions. For what that process involves, see our guide to how commercial mortgages work.

A weak or uncertain exit strategy is the single biggest reason bridging loan applications fail, and the single biggest risk for borrowers. If your exit does not materialise within the term, you will face extension fees and the possibility of enforcement.

How bridging compares to other secured lending

Bridging loans occupy a specific niche within secured lending. They are faster and more flexible than commercial mortgages but significantly more expensive. The cost premium reflects the short term, the specialist underwriting, and the greater risk to the lender if the exit fails.

If you are deciding whether bridging is the right tool, the key question is whether your situation genuinely requires speed or flexibility that long-term finance cannot provide. If it does, bridging may be appropriate despite the cost. If it does not, a commercial mortgage or other secured loan will almost always be cheaper.

For a broader overview of the secured lending landscape, see our guide to what is a secured business loan. For a comparison of how secured and unsecured finance differ, see secured vs unsecured business loans.