Bridging Loan Solicitors
Found your dream home, but your current sale hit a snag? Or perhaps you've just snapped up a property at auction and need quick cash to seal the deal or start that renovation? In these scenarios, a bridging loan can be the perfect short-term financial solution.
This guide will help you quickly grasp what a bridging loan really means for your finances, whether it's cheaper (or riskier) than a standard mortgage, how much you can actually borrow, and why Independent Legal Advice is non-negotiable before you sign.
What is a Bridging Loan?
A Bridging Loan is a fast, short-term financing solution designed to "bridge" a temporary financial gap when you need funds quickly but don't have immediate access to your capital. This often occurs in specific property-related situations, such as:
- Your current home sale falls through, but you still need to complete the purchase of a new property.
- You've successfully bid on a property at auction and require funds to meet strict completion deadlines.
- You're acquiring a property specifically for renovation or development before selling it on for a profit.
Unlike a traditional mortgage, which is a long-term commitment, a bridging loan is typically repaid within 12-18 months. Because lenders are taking on a higher risk with such short-term, substantial sums, the most critical factor for securing a bridging loan is demonstrating a solid exit strategy.
What's an exit strategy?
An exit strategy is your clear, documented plan for how you will repay the loan in full. This isn't about your personal income, but rather about the certainty that you will gain access to a larger sum of money in the near future. Common exit strategies include:
- The sale of another property (e.g., your current home).
- Refinancing the property onto a standard mortgage.
- Receiving a large inheritance or other confirmed money injection.
Lenders need to be fully confident in your exit strategy to approve the loan, as this is their primary assurance of getting their money back.
For many Bridging Loans, you don't need to make monthly payments. Interest can be 'rolled up' and paid in full, along with the principal, at the end of the loan term, which can ease short-term cash flow.
How much does a Bridging Loan cost?
Unlike traditional mortgages, bridging loans come with higher interest rates due to their short-term nature and the higher risk involved for lenders. The actual cost of your bridging loan will typically be a combination of:
Cost Type | Description |
Interest Rates | Bridging loan interest rates are generally quoted monthly, not annually, and can range significantly, typically from around 0.4% to 1.5% or more per month. This means an annual equivalent could be much higher than a standard mortgage. The rate you receive will depend on factors like the loan-to-value (LTV), the strength of your exit strategy, and the lender's assessment of your risk profile. |
Arrangement Fees | This is an upfront fee charged by the lender for setting up the loan, usually ranging from 1% to 2% of the loan amount, though it can vary. This can sometimes be 'rolled up' into the loan, meaning you don't pay it upfront, but it accrues interest. |
Valuation Fees | Lenders will require an independent valuation of the property being used as security, which you will typically need to cover. These fees vary based on the property's value, but generally range from £300 for lower-value properties up to £1,000+ for higher-value or complex assets. SAM's fee for this service starts from £360. |
Legal Fees | You'll need to pay for your own legal advice (conveyancing) and often the lender's legal fees as well for setting up the charge. These can vary per transaction, but you should budget anywhere from £750 to £3,000+ (covering both parties). |
Broker Fees | If you use a bridging loan broker (which is highly recommended for this specialist product), they will charge a fee for their service. This is typically a percentage of the loan, often between 0.5% and 2%, or sometimes a flat fee, and should be disclosed upfront. |
Exit Fees | Some lenders charge an exit fee when the loan is repaid, usually a percentage of the original loan amount (often around 1% to 2%) or a fixed fee. |
Bridging Loan vs Mortgage
While a mortgage is designed for stability and long-term ownership, a bridging loan offers speed and flexibility for urgent, short-term financial needs, albeit at a higher cost and with different risk considerations.
Mortgage | Bridging Loan |
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How much can you borrow with a Bridging Loan?
Unlike traditional loans, where personal income dictates your borrowing limit, the amount you can borrow with a bridging loan is primarily tied to the value of the asset being secured and the strength of your exit strategy. Generally, there isn't a fixed upper limit, as lenders assess each case individually.
The Loan-to-Value (LTV) Ratio
Lenders will offer a loan based on a percentage of the property's value, known as the Loan-to-Value (LTV). This usually ranges from up to 70% to 75% LTV, though some specialist lenders might go higher depending on the specific circumstances and the type of bridging loan (e.g., first charge vs. second charge).
The key factor, however, remains your ability to convince the lender that you have a definite and reliable plan to access the funds needed to repay the debt.
As long as your exit strategy is robust and the security (property) offers sufficient value, you can typically borrow a substantial amount to bridge your financial gap.
It might be best to ask for help with your loan. Independent mortgage brokers have a solid knowledge of the market and can advise you on the best loan product and deal for you.
Specialist Lenders vs High Street Banks for Bridging Loans
When seeking a bridging loan, you'll encounter two types of providers: high street banks and specialist lenders. While a few major high street banks like Lloyds Bank offer bridging finance, the vast majority of these products are provided by specialist lenders.
The key distinction lies in their approach and flexibility:
High Street Banks
Typically operate with more rigid lending criteria, often focusing heavily on personal income, traditional credit scores, and stringent affordability assessments.
Their processes can be slower, and they may be less accustomed to the unique, time-sensitive nature of many bridging loan scenarios.
Specialist Lenders
- Flexibility: Far more adaptable with their requirements and can make quicker decisions.
- Asset & Exit Strategy: Instead of relying solely on your income or a perfect credit score, specialist lenders focus on the market value of the property being secured and your exit strategy.
- Speed: Their processes are built for rapid turnaround, crucial for scenarios like auction purchases.
This means that even with a less-than-perfect credit score, securing a bridging loan can be possible with a specialist lender, provided you have substantial equity in the property and a credible plan to repay the loan.
Their lending decisions are less about your personal credit history for long-term repayments and more about the security of the asset and your ability to access capital quickly.
Is a Bridging Loan risky?
As with any financial product, bridging loans come with inherent risks for both the lender and, crucially, the borrower. While they offer invaluable speed and flexibility, it's vital to be fully aware of the potential downsides:
- High Costs - Bridging Loan interest rates are considerably higher than standard mortgages, and various fees can quickly accumulate. If your exit strategy is delayed, these costs can spiral, significantly increasing your overall debt.
- Shoryt Repayment Term - The very nature of a bridging loan is its short term (typically 12-18 months). This means you have a relatively small window to execute your exit strategy. If your planned source of funds (e.g., property sale, remortgage) is delayed or falls through, you could face significant financial pressure.
- Secured Against Assets - Bridging loans are secured loans. This means the lender will typically place a charge against an asset, usually your property. If you fail to repay the loan within the agreed term, the lender has the legal right to repossess and sell your property to recover their losses.
- Exit Strategy Reliance - Your entire repayment plan hinges on the success of your exit strategy. Should your property sale fall through, your remortgage application be declined, or your expected funds not materialise, you could be left in a precarious financial position with a rapidly accumulating debt.
Because of these risks, specialist lenders will always require you to obtain Independent Legal Advice (ILA). It's not just a formality; it's a critical protection for you.
A solicitor providing ILA will thoroughly explain the loan agreement's terms, conditions, and the risks involved, ensuring you fully understand the implications.
Independent Legal Advice from Bridging Loan Solicitors
Your lender will require a certificate of advice from a solicitor to prove that you have fully understood the loan agreement before you sign. Get in touch to book with our hand-selected panel solicitor for clear, no-nonsense advice.
Important: ILA MUST be given in person, not remotely.
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
