Bridging loans, and whether you really need one
A bridging loan can get a purchase over the line when a mortgage can’t, but it’s expensive and it has to be repaid on time. We look at the whole of the intermediary market for mortgages, so before anything else we check whether a bridge is the right answer at all.
5.0160+ Google reviewsBefore you take one
Told you need a bridging loan? You might not
There are some great advisors out there, but a firm that only arranges bridging or short-term loans can only offer you a bridge. Clients call us saying “I need a bridging loan”. Sometimes they do. Sometimes there’s a better way.
“We want to buy before we’ve sold”
Buying before you sell
A bridge can cover the gap. Depending on your equity and income, so might a mortgage on each home for a while, raising the deposit from your current one, or letting it on a let-to-buy mortgage.
“Our sale will take a while”
A slow sale or a shaky chain
A longer gap between exchange and completion can sometimes be agreed. A bridge is one way to keep a purchase on track if the chain breaks, but only with a clear way to repay it.
“We want to do the new place up first”
Works before you move in
Plenty of lenders will lend on a home you’ll live in that needs modernising, as long as it’s habitable and structurally sound. A bridge comes in when it isn’t: no kitchen or bathroom, say, or works too big for a mortgage lender yet.
A case we have done
Offered a bridge they didn’t need
A couple found a property they loved, near family. It needed several months of refurbishment, so they planned to stay in their own home while the work was done, and to keep their savings back to pay for it. They came to us to remortgage their current home, and mentioned they’d already been offered a bridging loan for the new one.
Looking at the figures, a bridge was a very expensive way to fund it. They were both decent earners and their current mortgage was small, but nobody had told them they could have more than one mortgage, as long as it’s affordable.
We arranged a mortgage on the new property and released some money from their current home at the same time, both with the same lender and both affordable. That gave them working capital for the refurbishment, and no bridging deadline forcing a quick, cheap sale of their home once they’d moved.
The trade-off was two monthly mortgage payments for a while, where a bridge would have rolled the interest up. They could comfortably afford both, so for them it was the better way.
Every case is different and nothing here is a promise of the same outcome.
Not sure whether you need a bridge?
Tell us what you’re trying to do. A CeMAP-qualified advisor will talk through the options, what each would cost, and make a recommendation.
When a bridge is the answer
Buying a property to do up and let out
The bridge we arrange most often is for a property that’s cheap because it needs a lot of work, bought to let out once the work is done.
Why a buy-to-let mortgage won’t do it
Buying a home to live in, most lenders only need it to be habitable and in good structural condition, so you can do the work as you go.
Buy-to-let is different. Pretty much all buy-to-let lenders need the property to be lettable at the application, or certainly by the valuation. A house that needs a new kitchen, a bathroom or rewiring usually isn’t, so it can’t go on a buy-to-let mortgage until the work is done.
Two ways to do it
- A standard bridge to buy and refurbish the property, repaid with a buy-to-let mortgage once it’s lettable.
- A bridge-to-let. The lender values the property up front for the bridge, and gives a value and a rent for once the works are done, so you can move straight onto its buy-to-let.
A bridge-to-let isn’t always the cheapest buy-to-let at the end, but it gives you a solid exit from day one. You don’t have to take it: once the work is done we can have the property valued and look around the market for a better deal.
How much you can borrow
Up to 90% of the price, within 75% of the value
In some cases a bridge can be up to 90% of the purchase price, as long as that’s no more than 75% of the property’s value. That helps when you’re buying below value because of the work it needs.
An illustration. Each lender sets its own limits, and what you can borrow also depends on the property, the works and your exit.
A case we have done
A house no lender would touch, bought on a bridge
A client wanted a four-bedroom house that needed significant refurbishment. In that condition it was unlettable, which also made it unmortgageable: no buy-to-let lender would lend on it as it stood. He wanted to buy through a limited company and turn it into a quality five-bedroom HMO.
We raised a bridging loan to buy it and to leave enough in the transaction for the full refurbishment. With bridging, the exit is what matters most, and the exit here was a limited company buy-to-let HMO remortgage: a lender who would lend against the higher value after the works and the rent from five lettable rooms, rather than what the house was worth on day one.
Every case is different and nothing here is a promise of the same outcome.
Buying something to do up and let?
Tell us about the property and the works. A CeMAP-qualified advisor will look at a bridge, a bridge-to-let and your exit before you make an offer.
Bridging loan calculator
What would the bridge actually cost?
Put in what you need and for how long. The fees start from a typical quote we see, with valuation and legal costs estimated, and the result shows how it compares with a standard mortgage over the same months.
The bridging loan
Interest is rolled up: added to the loan each month and repaid at the end, with the loan.
Fees and costs
Filled in from a typical quote. Valuation and legal fees are estimates.
The arrangement fee and lender fees are usually added to the loan, so interest is charged on them too. Other fees might be a packager or processing fee.
Compare with a mortgage
The same amount on a standard mortgage, over the same months.
Change these to a rate and fee you’d actually be offered.
Where the cost comes from
Compared with a mortgage
Would you still buy at this price if it cost you £6,028 more? If not, offer less, or build the cost into your numbers. If you would, a bridge can be worth it.
Your exit
Each extra month adds about £986. A bridge has an end date. Before you start, have a sale or a refinance lined up to repay it, ideally both.
Month by month: what you’d repay
| Month 1 | £154,159.65 |
| Month 2 | £155,115.20 |
| Month 3 | £156,076.66 |
| Month 4 | £157,044.09 |
| Month 5 | £158,017.51 |
| Month 6 | £158,996.98 |
| Month 7 | £159,982.51 |
| Month 8 | £160,974.15 |
| Month 9 | £161,971.94 |
| Month 10 | £162,975.92 |
| Month 11 | £163,986.12 |
| Month 12 | £165,002.59 |
An illustration, not a quote. Interest is shown rolled up and charged monthly on the loan and the fees added to it. The mortgage figure is interest for the same months plus the product fee. Your own solicitor’s fees for the purchase apply either way.
This is a guide, not a quote. Bridging rates and fees depend on the lender, the property, how much you borrow against it and how you’ll repay. A bridge isn’t always the answer: we’ll look at the other options with you first.
Would you pay that much more for the property?
If a bridge really is the only way to buy a property, it’s the last-chance saloon, and that can be fine, as long as you know the cost going in.
Say it works out £20,000 more than a mortgage would. Ask yourself whether you’d pay £20,000 more for this property. If not, offer less, or build the cost into your numbers. If you would, it’s often worth it.
The exit is everything
- Before you start, you need a solid way to pay it back: a sale, a refinance onto a mortgage, or ideally both.
- A bridge has an end date. Go past it and the cost climbs quickly, as interest keeps building and lenders can add default interest and charges.
- Plan for things taking longer than you hope. Sales fall through and works overrun.
- We plan the exit with you before anything is applied for.
Want a second opinion on your exit?
A CeMAP-qualified advisor will look at how you’d repay the bridge, and what happens if it takes longer than planned.
How bridging works
The terms you’ll come across
Interest
A monthly rate
Bridging is priced by the month, not the year. Interest is usually rolled up and repaid at the end, retained (taken from the loan at the start), or serviced (paid monthly).
Fees
More than the rate
Expect an arrangement fee, often around 2% and added to the loan, plus lender admin fees, a valuation, legal fees and sometimes an exit fee.
Exit
Open or closed
A closed bridge has a fixed repayment date, such as a sale that has exchanged. An open bridge doesn’t, but the lender still wants a clear plan, and most run for 12 months or less.
Security
First or second charge
A first charge bridge is the main loan on the property. A second charge sits behind an existing mortgage, which can help if you don’t want to disturb it.
Regulation
Your home, or an investment
A bridge secured on a home you or your family live in, or will live in, is regulated by the FCA. Bridging on investment or commercial property usually isn’t.
Borrowing
How much you can borrow
Lenders compare the loan with the property’s value, usually up to around 75%. Buying below value, some lend up to 90% of the price, within that 75%.
Bridging loan questions
What is a bridging loan?
A short-term loan secured on property, used to bridge a gap: buying before you’ve sold, buying a property no mortgage lender will lend on yet, or buying quickly, at auction for example. It’s repaid in one go, usually within 12 months, from a sale or a refinance.
Can I get a buy-to-let mortgage on a property that needs work?
Usually not until the work is done. Buy-to-let lenders need the property to be lettable at the application, or by the valuation. That’s why a bridge, or a bridge-to-let, is often used to buy and refurbish it first.
What is a bridge-to-let?
A bridging loan and a buy-to-let mortgage from the same lender. The property is valued up front, with a value and a rent for after the works, so you can move onto the buy-to-let as soon as the refurbishment is finished. You can still look at other lenders at that point.
How much can I borrow on a bridging loan?
In some cases up to 90% of the purchase price, as long as it’s no more than 75% of the property’s value. Each lender sets its own limits, and the property and your exit matter too.
How much does a bridging loan cost?
Interest is charged by the month, and on top come an arrangement fee, lender fees, a valuation, legal fees and sometimes an exit fee. Because it all adds up, look at the total cost over the months you’ll need it, not just the rate. Work out your own figure.
Do I need a bridging loan to buy before I sell?
Not always. You can have more than one mortgage, as long as it’s affordable, so depending on your equity and income, a mortgage on each home for a while, raising the deposit from your current one, or letting it on a let-to-buy mortgage can do the same job for less. We’ll set out the options and make a recommendation.
What is an exit strategy?
How you’ll repay the bridge, usually the sale of a property or a refinance onto a mortgage. Lenders want to see it before they lend, and the safest plans have both lined up.
What happens if I can’t repay it on time?
Interest keeps building, and lenders can charge default interest and fees, so the cost rises quickly. Some lenders will extend, but not all. As the loan is secured on property, the lender can ultimately take possession of it. That’s why we plan the exit with you before anything is applied for.
How quickly can a bridging loan be arranged?
Usually more quickly than a mortgage, though it depends on the valuation and the legal work. Bridging on a home you live in is regulated, and tends to take longer than bridging on an investment property.
Can you help with bridging in Bournemouth and Dorset?
Yes. Our office is in Poole, and we help clients across Bournemouth, Dorset and the rest of the UK. Everything can be done by phone, video and email, and you’re welcome to come into the office.
Talk to us before you take a bridge
Leave your name and number and a CeMAP-qualified advisor will call you back. We’ll look at whether a bridge is the right answer, what it would cost, and how you’d repay it.
Darren, Beth, Ben & JakeYour advisors, at our office in Poole
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