Bridging Loans in the UK: What They Are, When to Use Them, and How Not to Get Burned

Picture this: you have found the perfect house, but yours hasn’t sold yet. 

Or maybe you’ve just bagged a bargain at auction and need to stump up the cash in 28 days flat. 

Traditional mortgages? Too slow. 

Your savings? Not nearly enough. 

But this is exactly when a bridging loan comes into play. 

No, they are not glamorous and they are not cheap, but they sure can save your bacon when both time and cash flow are against you. So let's explore the ins, outs, and everything in between of bridging loans.

‍

What Is a Bridging Loan?

A bridging loan is a short-term finance option that is secured against property that gives you some breathing room until your “exit” (usually a sale or a refinance.) 

Think of it as the financial equivalent of scaffolding; it’s there to hold things up for a bit, but not to be left in place forever!

Common Use Cases

Bridging loans are popular with buyers who need to move fast or who otherwise cannot get a traditional mortgage signed off in time. 

Typical scenarios include some like the following:

• Snapping up an auction property
• Buying your next home before your current one sells
• Short-term cash flow for landlords and developers renovating a property.
• Business owners pulling capital out of a property to plug a gap elsewhere.
  
  

Open vs Closed Bridging

Closed bridging loans are tied to a fixed exit date, say the day your existing house sale completes. 

Open bridging loans have no fixed end date, but lenders still expect to be repaid within 6 to 12 months at the latest. Open sounds more flexible, but it is riskier for the lender…which naturally means pricier for you.

‍

Regulated vs Unregulated

If the loan touches your main residence, it’s regulated by the FCA, so you at least get consumer protection. If it’s purely investment or commercial, it usually falls under unregulated lending. 

Unregulated gives you more wiggle room, yes, but it also strips away most of your safety net if things go pear-shaped.

‍

How Bridging Loans Work

Term & Repayment

Bridging loans rarely run beyond a year, though some stretch out to 18 or even 24 months. Interest can be:

• Rolled-up (nothing paid monthly, since it all piles on until the end.)
• Retained (the lender holds back the interest from the loan advance.)
• Serviced (you pay monthly like you would a normal loan.)

At the end, you repay the whole lot (capital plus any interest) using your exit strategy.

‍

Typical LTV Ranges

Most lenders cap out at 70 to 75% loan-to-value, though 60 to 65% is common for riskier assets. They will look closely at things like the property type (a tired terrace in Hull is not the same as a prime flat in Mayfair), the quality of the valuation, and whether your exit plan passes the sniff test.

‍

Pricing Components

The headline monthly rate (which is often 0.6 to 1.5%) does not tell the full story. Add arrangement fees (often 2%), valuation, legal costs, possible exit fees, and just like that you are going to be staring at an annualised cost that can easily run into the double digits.

‍

Underwriting Priorities

Mainstream banks are obsessed with your payslips. 

Bridging lenders? They only care about one thing: can you repay on time? 

They will pore over your exit route, check contracts, sales memos, refinance offers, and scrutinise the valuation like hawks.

‍

Timeline From Enquiry to Funds

Best case, a bridging loan can complete in under a week. 

More typically, you are looking at 2 to 3 weeks, which still trounces the months it takes for a conventional mortgage to crawl through the system.

‍

When Is a Bridging Loan Smart?

A bridging loan can potentially be smart in the following scenarios:

‍

Speed Matters

If you are going to be buying at auction or in a bidding war where “cash buyer” status wins you the keys, bridging is a weapon. Mortgages cannot move that fast!

‍

Complex Cases Welcome

Adverse credit, irregular income, limited company structures (e.g., the stuff that basically makes high street banks clutch their pearls) are not automatic deal breakers with bridging lenders. If the exit makes sense, they are often fine with it.

‍

Cash-Buyer Discounts

Turn up with bridging finance, and suddenly you look like a cash buyer! That perception can shave thousands off the asking price or push your offer to the top of the pile. Sellers like certainty, and bridging is something that gives you that appearance.

‍

The Risks Associated with Bridging Loans

So what are some of the potential negatives of bridging loans? You’ll want to keep the following in mind:

‍

High Cost

Monthly rates do not look scary until you annualise them. 

Rolled-up interest quietly compounds, and by the time you settle up, the cost can be staggering when compared with a mainstream mortgage.

‍

Exit Risk

If your property sale collapses or your refinance lender gets cold feet, you’re basically stuck. And without an exit, you’re flat out in dangerous territory.

‍

Fee Stack

Arrangement fee, valuation fee, legal fee, extension fee. Each one might look modest on paper, but together they can and will stack up faster than you think.

‍

Repossession and Guarantees

Bridging lenders do not mess around. Default and repossession can follow sharpish. If you have borrowed through a company, personal guarantees mean your own assets are on the line too.

‍

Market and Project Risk

Property values fall, contractors overrun, planning permission drags, budgets explode. You get the idea. The market simply does not care about your exit plan, and delays can push you into costly extensions or worse.

‍

Limited Regulation

If you are in unregulated waters, there is no FCA safety net. You are on your own if disputes arise, and terms may not be as borrower-friendly as you would like.

‍

Eligibility & Documents Checklist

Lenders want evidence that your exit is real, not wishful thinking. Be ready with:

• A full RICS valuation.
• Proof of exit (like a memorandum of sale or an agreement in principle for refinance), or otherwise liquidity in your portfolio.
• ID, proof of address, AML checks, income or asset statements, and company paperwork if borrowing through an SPV.
• For refurb or development, a schedule of works, contractor quotes, planning and building regs approval, and a contingency budget to cover overruns.

‍

How It Impacts Your Credit Score

Credit Searches

Some lenders do a soft search first, while others jump straight to hard searches. Too many hard hits in a short window can dent your score.

‍

Payment Behaviour

Miss an interest payment or push for an extension, and negative markers can follow. Even rolled-up loans can leave a trace if things wobble.

‍

Debt at Refinance

When you refinance out, your debt-to-income ratio and credit utilisation are under the microscope. If the bridging loan makes your finances look stretched, you may find mainstream lenders less keen.

‍

Action Plan

• Fix errors on your credit file before applying.
• Reduce credit card balances and revolving debt.
• Set calendar alerts for every payment and deadline.
• Track refinance milestones religiously and avoid new borrowing during the bridge.
• Keep a cash cushion so that you do not end up begging for an expensive extension.

Wrapping It All Up

A bridging loan is not a cosy and long-term mortgage. 

‍

Think of it more as a power tool that is fully capable of doing the job brilliantly in the right circumstances, but that is also equally capable of making a huge mess if misused. 

If you have a clear exit, a strong plan, and the stomach for higher costs, bridging finance can open doors at lightning speed. 

But if your exit is shaky or your budget is tight, then the very bridge meant to carry you across might just collapse under you. 

‍

The lesson? 

Know what you are stepping onto before you take that first stride. And make sure your finances are in order. 

Fortunately, Pave exists to help you out here. Pave is an award-winning credit-builder app that actively works with you to help you build your credit score. No hard credit checks required. In addition, Pave will help you keep on top  of your finances by giving you personalised credit fixes, bill reminders and much more. 

To learn more and see why hundreds of thousands of people across the UK have turned to Pave to improve their credit score, download the app today. Available on App Store and Google Play, or sign up online.

‍