Bridging Finance

Bridging is priced monthly, not annually. Rates commonly run from around 0.55% to 1.5% a month depending on the loan to value, the property and the strength of the case. On top of that there is an arrangement fee, usually 2% of the loan, a valuation, your legal costs, the lender’s legal costs, and sometimes an exit fee.

Put together, a 200,000 bridge held for nine months can easily cost 20,000 or more once every fee is counted. That is not a reason to avoid it, but it is a reason to be certain the transaction is worth it. Terms typically run from one to twelve months, sometimes eighteen, and most lenders charge for a minimum period of one to three months even if you repay sooner.

How the interest is paid

Interest is usually retained or rolled up rather than paid monthly. Retained means the lender holds back the whole term’s interest from the advance at the outset, so you receive less than the headline loan. Rolled up means it accrues and is settled at the end. Either way, the amount you actually get in your hand is smaller than the gross loan, and the calculation needs doing carefully if you have a specific sum to raise. Serviced interest, paid monthly, is available where you can demonstrate the income to cover it, and it leaves more of the loan available to you.

A bridging lender is not primarily assessing your income. They are assessing how the loan gets repaid, and that is the exit. If the exit is not credible, no amount of equity in the property will get the case agreed by a sensible lender.

Closed and open bridges

A closed bridge has a defined repayment date and a certain source of repayment, typically an exchanged sale contract with a fixed completion date. Because the outcome is known, closed bridges price more keenly.

An open bridge has no fixed end date. The property is on the market but not sold, or the refinance is intended but not yet agreed. Lenders will still consider it, at a higher rate, and they will want evidence: agent marketing details, viewing history, a realistic asking price, or a mortgage in principle from the lender who will eventually take over.

The most common way bridging goes wrong is an exit that slips. A sale falls through, a refinance is declined on valuation, a refurbishment overruns. Before we arrange anything we will talk through what happens if the exit takes twice as long as planned, and whether you could still absorb that.

A first charge bridge sits as the primary security on the property, either because there is no existing mortgage or because the bridge repays it. A second charge sits behind an existing lender, who has to consent, and it lets you raise money without disturbing a mortgage you want to keep, which matters if you are on a good fixed rate with early repayment charges.

Second charge bridging is more expensive and the loan to value limits are tighter, because the second charge lender only recovers what is left after the first lender is paid. Most bridging lends up to around 70% to 75% of value on a first charge, calculated on the gross loan including retained interest and fees, so the net sum available to you is lower again.

The cases we see most often are:

• Buying before selling, where a chain has broken or a purchase cannot wait
• Auction purchases, where completion is typically required within 28 days
• Property that a mortgage lender will not touch in its current state, such as a house with no working kitchen or bathroom, which is bridged, refurbished and then remortgaged
• Raising a deposit or funding a short term business need against property equity
• Buying a lease extension or freehold where the timing is fixed by the transaction

If you have time to arrange a normal mortgage, arrange a normal mortgage. Bridging earns its cost where a deadline is real and the alternative is losing the transaction.

Most bridging is unregulated. Where the loan is secured against a property that you or a close family member live in, or intend to live in, it is regulated bridging and the full mortgage rules apply, including the advice requirements and access to the Financial Ombudsman Service. Where the security is an investment property, a commercial unit or a project you will never occupy, it sits outside those rules. The distinction is about the security property, not about who you are, and it is one of the first things we establish.