A bridging loan is a short-term property finance solution designed to “bridge the gap” between purchasing a property and securing long-term funding. This type of bridging finance provides fast, flexible funding while borrowers arrange a permanent financial solution.
A clear exit strategy is required to repay the loan in full. This usually involves selling a property, refinancing onto a standard mortgage, or a combination of both.
Most bridging loans are arranged over a short-term period, typically up to 12 months. While many lenders allow early repayment without penalties after an initial period, borrowers are often required to pay a minimum of three months’ interest. If the loan is repaid within this timeframe, the borrower remains liable for the full three months of interest. After this period, interest is usually charged only for the actual duration the loan is outstanding.
A common feature of bridging finance is rolled-up interest. With this structure, interest is added to the loan balance each month and repaid at the end of the term, rather than through monthly payments. This can significantly improve cash flow, although it increases the total amount repayable.
Lenders typically cap bridging loans, including rolled-up interest, at around 70–75% loan-to-value (LTV) based on the property’s value, although some specialist lenders may offer higher LTVs.
When assessing an application, bridging loan lenders focus on two key factors:
Bridging loans are widely used for a range of property and investment purposes, including:
Thanks to their speed and flexibility, bridging loans are a valuable funding option for property investors, developers, and business owners who need quick access to capital and a short-term finance solution.