What Is a Bridging Loan and How Does It Work? A Clear Guide for UK Property Investors

•  Introduction
  
• Understanding bridging loans
• What’s the difference between bridging loans and auction finance
• Bridging finance companies and brokers
• How bridging loans work
• When to use a bridging loan
• Costs and considerations
• Exit strategy
• Loan to value term
• Benefits of bridging finance
• Risks and how to mitigate them
• Choosing the right bridging loan
• Commercial bridging loans
• Why use a bridging broker 
• FAQ’s
• Conclusion

A bridging loan is a short‑term funding solution that helps you complete a property transaction when timing is critical. Unlike long‑term mortgages, bridging loans provide fast access to capital, allowing you to bridge the gap between buying and selling or to fund a project that cannot wait. In the UK property market, bridging finance has become an essential tool for investors, developers and business owners. This guide explains what bridging loans are, how they work, and how to decide whether one is right for your next property venture.

What is a bridging loan?

A bridging loan is a short‑term, property‑backed loan designed to provide swift access to funds when timing is crucial. It is secured against residential, commercial or mixed‑use property and is typically repaid within a few months up to around one or two years. Because it fills a gap rather than being a permanent solution, bridging finance is often used when you need money quickly but a traditional mortgage cannot be arranged in time.

Bridging loans in the UK can be:

• First‑charge bridging loans – where the lender holds the primary claim on the property.
• Second‑charge bridging loans – This is where the lender takes a secondary claim behind an existing mortgage. Please note: We currently focus exclusively on first-charge bridging loans and do not offer second-charge facilities.
  

What’s the difference between bridging loans and auction finance?

Although many lenders use the terms interchangeably, auction finance is effectively a type of bridging loan tailored to meet the tight deadlines associated with buying property at auction. Both products are secured against property and offer fast completion, but auction finance is specifically structured to enable completion within the usual 28‑day auction timeline.

Bridging finance companies and brokers

Many specialist lenders and bridging finance companies in the UK operate through intermediaries. A bridging broker acts as a project manager between you and multiple lenders, matching your case to the most suitable loan product. Some lenders only work via brokers, so using a broker widens your access to funding options and helps you find the best rates and terms.

The bridging loan process is designed for speed. Here is a typical sequence:

1. Enquiry and indicative terms – You approach a lender or broker with details of the property and your intended exit strategy. At this stage you receive indicative terms within hours.
2. Application and documentation – If the terms are acceptable, you submit a formal application. Lenders will check your credit, property value and exit plan. A broker will help prepare your case and ensure all documents are ready.
3. Valuation and legal work – An independent valuation of the property is undertaken. Solicitors carry out due diligence on title and any outstanding charges. In some cases, a desktop valuation can be used to save time.
4. Final approval and funds release – Once valuation and legal checks are complete, the lender issues formal approval and releases the funds. This can happen within days, not weeks.

Interest and repayment – Bridging loans are typically interest‑only; you can either make monthly interest payments or retain (“roll up”) the interest to be paid with the capital at the end of the term. The loan is repaid in a lump sum when you sell, refinance or otherwise realise your planned exit.

Bridging finance is flexible. Common scenarios include:

• Breaking a property chain – You want to buy a new property before your current one sells. A bridging loan allows you to complete your purchase without waiting for proceeds.
• Buying at auction – You need to complete within 28 days. A bridging loan or auction finance ensures you have funds ready.
• Purchasing unmortgageable property – The property may lack a kitchen or bathroom, making it ineligible for a standard mortgage. Bridging finance funds the purchase and refurbishment.
• Refurbishment and development – Bridging loans can finance light refurbishment or conversion work so the property can later qualify for a mortgage or higher sale price.
• Commercial property investment – Commercial bridging loans help investors acquire or refinance offices, shops or mixed‑use buildings quickly.

Releasing capital for new opportunities – Unlock equity in an existing property to fund another investment.

Interest rates and fees

Bridging loans carry higher rates than mainstream mortgages because they are short term and provide rapid funding. Typical charges include:

• Monthly interest – Usually quoted as a percentage per month (for example, 0.9%–1.5%), which equates to 11–18% per annum. Lenders may calculate interest daily, monthly or on a compound basis.
  
• Arrangement fee – A lender’s fee, often 1–2% of the loan amount.
  
• Valuation fees – The cost of independent property valuation.
  
• Legal fees – Payable to your own solicitor and sometimes the lender’s solicitor.
  
• Broker fee – If using a broker, their fee or commission should be disclosed in advance.

Exit strategy

The most important consideration is your exit strategy – how and when you will repay the loan. Lenders will not approve a bridging loan without a clear, realistic plan. Exits typically involve:

• Sale of the property or another asset.
  
• Refinance onto a buy‑to‑let or commercial mortgage once work is complete.
  
• Sale of another property to free equity.

Having a backup plan is prudent; delays in selling or refinancing can lead to default and extra costs.

Loan to value and term

Bridging lenders often lend up to 70–75% of the property’s value. Terms range from a few months up to 12–24 months.

Despite higher costs, bridging loans offer several advantages:

• Speed – Funds can be approved and drawn within days rather than weeks.
• Flexibility – Loans can be used for residential, commercial or mixed‑use property, and for buying, refinancing or refurbishing.
• Opportunity – Being a cash buyer in a competitive market lets you negotiate better purchase prices and act quickly on opportunities.
• Asset‑backed – Lenders focus on the property’s value and exit strategy rather than your income or credit score.
• Rolled‑up interest – You may not need to make monthly payments; the interest can be paid at the end.
  

Bridging loans carry risks that you should assess carefully:

• Higher cost of borrowing – Interest rates and fees are higher than traditional mortgages. Mitigation: Compare offers from multiple lenders and ensure the opportunity justifies the expense.
• Short timescales and risk of default – Delays in your exit plan can trigger penalty interest or repossession. Mitigation: Build buffer into your timeline and arrange backup finance or an extension option.
• Overestimating property value – Borrowing against an optimistic value may cause issues if the sale price is lower. Mitigation: Obtain independent valuations and be conservative in your calculations.
• Choosing the wrong lender or product – Not all bridging loans suit every scenario. Mitigation: Use a specialist broker to compare regulated vs unregulated products, first vs second charge, and assess lenders’ speed and flexibility.

Hidden or unexpected fees – Unclear fee structures can inflate the cost. Mitigation: Request a full fee breakdown in writing before proceeding and question anything that’s unclear.

Assess your needs

Identify why you need bridging finance: buying at auction, funding refurbishment or bridging a chain break. Estimate how much you need and for how long. Overestimate slightly to allow breathing room; bridging loans are short term by design, but you don’t want to run out of time.

Understand loan types

Bridging loans can be closed (with a fixed repayment date) or open (no fixed end date). Closed loans are lower risk and may have better rates, whereas open loans provide flexibility if your exit date is uncertain. Decide whether a first-charge loan suits your needs. Since we offer first-charge security, this means the property must be unencumbered or the loan must clear any existing charge.

Compare lenders and quotes

Interest rates and fee structures vary. Compare the monthly rate, arrangement fee, valuation fee, exit fee and broker fee, and ask whether interest accrues daily, monthly or compounding. Also enquire about the lender’s appetite for extensions and how quickly they can act. Many lenders only lend via brokers, who can access a wider panel and secure competitive bridging loan quotes.

Ask the right questions

When discussing a potential loan, ask:

• What is the total cost, including all fees?
• Can interest be retained (rolled up) or must I pay monthly?
• What happens if I need to extend?
• Is this loan regulated or unregulated? (Regulated loans apply if the security is or will be your home, with extra consumer protections.)
• How quickly can you complete?

Use a specialist bridging broker

A bridging broker assesses your case and secures a decision in principle from a suitable lender, often within hours. They also package your application, coordinate valuations and legal work, and manage the process to completion. Brokers have access to many lenders and know which ones can fund complex or time‑sensitive deals. They ensure that fees are transparent and that the loan fits your exit strategy.

Commercial bridging loans are short‑term loans secured against commercial or semi‑commercial property. They serve similar purposes to residential bridging but are tailored for business needs:

• Time‑sensitive acquisitions – Buying shops, offices or mixed‑use buildings quickly.
• Refinancing delays – Bridging a gap while waiting for long‑term commercial finance.
  
• Releasing equity for new ventures – Unlocking capital tied up in commercial property.
  
• Light refurbishment – Funding improvements that will increase rental value or make a property mortgageable.
  
• Development exit – Allowing time to sell units or secure term finance after development completion.

Because lenders focus on the property’s value and exit plan rather than the borrower’s personal income, commercial bridging loans can be arranged swiftly. However, they still require a clear exit strategy and carry higher costs, so professional advice is vital.

A bridging broker acts as a trusted intermediary between you and lenders. Here’s why using one makes sense:

• Access to lenders – Many specialist lenders work exclusively through brokers. Brokers often have relationships with “whole of market” providers, giving you more choice.
• Expert advice – Brokers understand each lender’s criteria, appetite and turnaround times. They know which lenders accept unusual properties, mixed‑use assets or complex titles and can structure your loan accordingly.
• Time savings – A broker manages paperwork, valuations, legal coordination and negotiations, freeing you to focus on your project. They can expedite the process by using desktop valuations and recommending solicitors familiar with bridging.
• Risk mitigation – A good broker steers you away from unsuitable products or predatory lenders and ensures fees are transparent. They help you develop a realistic exit strategy and plan for contingencies.
  

Is it a good idea to get a bridging loan?

A bridging loan can be a powerful tool when used correctly. It is most suitable when you have a clear exit plan and a time‑sensitive opportunity, such as an auction purchase or breaking a chain. Ensure the profit or benefit outweighs the cost and that you have contingency plans for delays.

Do you pay monthly payments on a bridging loan?

Many bridging loans allow interest to be retained or “rolled up” – meaning you don’t make monthly payments. Instead, the interest is added to the loan and paid in full on completion. Some borrowers choose to make monthly interest payments to reduce the final balance; this option depends on the lender and loan structure.

Is there a cheaper alternative to a bridging loan?

If you do not need the funds quickly, a traditional mortgage or secured loan will usually be cheaper. However, these products take longer to arrange and may not be suitable for auction purchases, chain breaks or unmortgageable properties. Development finance or personal loans may be alternatives depending on the project size and timeline, but they lack the speed and flexibility of bridging. Always compare options and consult a broker to find the most cost‑effective solution.

How does a bridge loan work?

A bridge loan provides short‑term finance secured against property. You receive funds quickly, often within days, and repay in a lump sum using the proceeds from a sale or a remortgage. Interest can be paid monthly or rolled up. Because it is short term, the lender focuses on the property’s value and your exit strategy rather than long‑term affordability.

Bridging loan quote: how do I get one?

To obtain a bridging loan quote, speak directly with a specialist lender such as BiG Property Finance. Share the key details of your project, including the property value, location, type of security, how much you need, what the funds will be used for, and your exit strategy.

We review each case individually and provide clear, upfront terms. In many cases, an initial indication can be given within hours so you can move quickly when timing matters.

Bridging loans are a practical tool for property investors, developers and business owners who need fast, flexible finance. They allow you to secure opportunities that may not fit the timescales of traditional lenders. As with any short term finance, planning is essential. Understand your exit strategy, be clear on the costs and work with a lender who can act at the pace your deal requires.

With the right preparation bridging finance can help you take advantage of opportunities that might otherwise be missed, giving you a stronger position in a competitive market.

If you would like to explore your options or request a personalised bridging loan quote, get in touch. The team will guide you through the process, assess your project quickly and provide straightforward, transparent terms tailored to your needs.