Bridging Finance Guide

Bridging finance is a short-term, interest-only loan used to "bridge" a gap in funding — typically for property purchases, auctions, refurbishments, or chain breaks. Bridging loans are designed to be arranged quickly and repaid within a short period (usually 3-18 months) through the sale or refinance of the property. They are not a substitute for long-term finance and are typically more expensive than term facilities.

Bridging loans fall into two categories. Regulated bridging loans are secured against a property that the borrower (or a related individual) occupies or intends to occupy as their home — these are regulated by the FCA. Unregulated bridging loans are secured against commercial property or investment property and are not FCA-regulated. The classification depends on the property use and borrower circumstances. If you are unsure whether a bridging loan is regulated, seek advice from a qualified professional.

Bridging lenders assess loan-to-value (LTV) — the loan amount as a percentage of the property value or purchase price (whichever is lower). Maximum LTVs for bridging finance are typically lower than for term mortgages, commonly up to 65-75%, though actual maximums depend on the lender, property type, borrower profile and exit strategy. Some lenders will lend against the day-one value (the current value) and others against the GDV (gross development value) for refurbishment projects.

Bridging loan terms are typically 3-18 months. Interest is usually charged monthly and can be serviced (paid monthly) or rolled up (added to the loan and repaid at the end). Some lenders offer retained interest — the interest is pre-calculated and deducted from the loan at drawdown. The facility is repaid through the exit strategy (sale or refinance). You must have a credible exit strategy before the loan is drawn down.

The exit strategy is how you plan to repay the bridging loan — typically through the sale of the property or refinance onto a term mortgage or development exit. Lenders will assess the credibility of your exit strategy before funding. A weak or unproven exit strategy is the most common reason for a bridging application being declined. Have evidence to support your exit — sales valuations, refinance illustrations, or a credible plan for refurbishment and resale.

Bridging finance fees can include: arrangement fee (typically a percentage of the loan), valuation fee, legal fees (lender and borrower), broker fee, and potentially exit fees. Interest is charged on a monthly basis — even a small monthly rate adds up over a short term. Compare the total cost (interest plus fees) rather than focusing on the monthly rate alone. All fees should be agreed and documented upfront.

Security typically includes a first legal charge over the property. Lenders may also require personal guarantees from directors or borrowers, particularly on higher-LTV or higher-risk facilities. Personal guarantees can expose personal assets and may lead to bankruptcy if enforced. Always seek independent legal advice before signing a personal guarantee. See our Personal Guarantee Guide for more information.

Bridging finance carries significant risks. If your exit strategy fails (the property does not sell, or refinance is not available), you may be unable to repay the loan at the end of the term. Lenders can extend the term (usually at additional cost) or enforce security — which can lead to repossession of the property. Rolled-up interest increases the amount you owe over time. Never treat bridging finance as a long-term solution. Always have a backup exit plan and seek professional advice before proceeding. FinanceMyCompany.co.uk is a credit broker, not a lender.