Bridging Loans UK: A Complete Guide to Costs & Risks

Bridging loans in the UK are a form of short-term finance designed to "bridge the gap" between buying a new property and securing long-term funding, such as a mortgage or property sale. They are commonly used in time-sensitive situations where speed and flexibility are essential.

This guide explains what bridging loans are, how they work in the UK, typical costs, pros and cons, and when they may (or may not) be suitable.

What Are Bridging Loans?

A bridging loan is a short-term, secured loan, usually taken out for a few weeks up to 12 months (sometimes up to 24 months). It is typically secured against property or land.

In the UK, bridging loans are often used when:

• A property purchase must complete quickly
• A buyer hasn’t yet sold an existing property
• A property is not mortgage-ready
• Funds are needed temporarily before refinancing

How Do Bridging Loans Work in the UK?

Bridging loans work differently from standard mortgages:

• They are asset-based, meaning approval is mainly based on the value of the property, not income.
• Funds can often be released within days, not months.
• Repayment usually happens through an exit strategy, such as:
• Selling a property
• Refinancing onto a mortgage
• Business cash flow or investment funds

Common Types of Bridging Loans

• Open bridging loan – no fixed repayment date (higher risk, higher cost)
• Closed bridging loan – fixed exit date agreed in advance
• Residential bridging loan
• Commercial bridging loan
• First charge or second charge bridging loan

What Are Bridging Loans Used For?

In the UK, bridging loans are commonly used for:

• Property chains breaking down
• Auction purchases with tight completion deadlines
• Buying before selling
• Property refurbishment or development
• Unmortgageable properties
• Business cash flow gaps

How Much Do Bridging Loans Cost in the UK?

Bridging loans are more expensive than traditional mortgages due to their short-term nature and higher risk.

Typical UK bridging loan costs include:

• Interest rates: usually 0.6%–1.5% per month
• Arrangement fees: around 1–2% of the loan
• Valuation fees
• Legal fees
• Exit fees (on some products)

Interest can often be:

• Rolled up (paid at the end)
• Serviced monthly
• Retained (set aside from the loan)

Advantages of Bridging Loans

• Fast access to funds
• Flexible lending criteria
• Suitable for non-standard properties
• Short-term solution for urgent purchases
• Can help secure property deals quickly

Risks and Disadvantages of Bridging Loans

• Higher interest rates than mortgages
• Fees can add up quickly
• Requires a clear exit strategy
• Risk of property repossession if repayment fails

Bridging loans should only be considered after fully understanding the risks and having a realistic repayment plan.

Do You Need a Financial Adviser for a Bridging Loan?

While not always legally required, professional advice is strongly recommended. A regulated adviser or broker can:

• Compare lenders and rates
• Assess affordability and risk
• Help structure a realistic exit strategy
• Ensure the loan is suitable for your circumstances

Some bridging loans are regulated by the FCA (mainly residential), while others are unregulated (commercial or investment use).

Are Bridging Loans Right for You?

A bridging loan may be suitable if:

• You need funds quickly
• You have a clear, credible exit plan
• You understand the costs and risks
• Traditional finance isn’t available in time

They are not ideal for long-term borrowing or situations with uncertain repayment.

Final Thoughts: Bridging Loans UK

Bridging loans in the UK can be a powerful short-term financing tool when used correctly. They offer speed and flexibility, but come with higher costs and risks than standard mortgages.

Before proceeding, it’s important to seek independent advice, compare lenders carefully, and ensure you have a solid exit strategy in place.

Before making a decision, it’s a good idea to speak with an insurance advisor or research the options available to find a policy that best suits your needs and budget.