Borrowers   |   Introducers

The Loan Partnership Logo White

How does a bridging loan work?

So, you’ve heard of bridging finance but want to know more about how it all works. This quick-fire guide will explain what you should expect when getting a bridging loan, what interest rates are available and how long it should take.

What is a bridging loan?

Simply put, a bridging loan is a type of short term finance that can provide you with extra cash quickly and essentially ‘bridge the gap’ in your finances.

Close-up of front door handle

Secured against your property, a bridging loan is typically used for scenarios with tight deadlines such as purchasing a property at auction, having additional funds to purchase an in-demand property while you wait for your current one to sell or to even cover the costs of refurbishing your property to help to attract a buyer.

For whatever reason you may be considering bridging finance, with the right mortgage advice it can be quick to secure and provide the short term cash injection you need before a more permanent form of finance can be arranged, such as a mortgage.

How do you get a bridging loan?

One of the easiest ways to get a bridging loan is to first discuss your options with an experienced bridging broker, such as one of our bridging specialists at TLP. We will ask a few questions to understand your situation and what you are looking to borrow.

We will then compare a wide range of loan options from our panel of specialist bridging lenders, including lenders such as United Trust Bank, Shawbrook and West One Loans. With over a decade of experience in the bridging finance sector, our team has in-depth market insights so will be able to easily navigate the latest lending criteria to identify suitable solutions to match all your needs. Using our industry relationships we may even contact the lenders directly to discuss your potential application, to ensure they are the right lender for you.

You’ll receive a free no-obligation quote with a full breakdown of all our recommendations. Once you are fully happy with the rates and terms, we’ll help manage the application at each stage, will deal with all the boring paperwork and will strive to mitigate any unnecessary delays so that your application is approved as fast as possible. From enquiry to completion, we can typically get your bridging loan approved and the funds released within 5 – 14 days, depending on your unique circumstances and the lender’s requirements. In some cases, it can be arranged quicker or in more complex applications, it can take slightly more.

A bridging loan is usually secured over a period of 12 months, but there are lenders who will provide more flexible terms from 1 – 36 months. The broker can discuss with you all of the options available for you as getting the right length of term can be pivotal to the success of the loan.

What are the interest rates for a bridge loan?

Bridging finance interest rates can vary on a daily basis but are typically between 0.5% and 2% per month, depending on the lender that you choose.

A bridging loan can be more expensive than other types of finance available but most lenders will only charge interest on the months that your loan is outstanding. Therefore if you secure a loan to purchase a property while you try to sell your current one, if the loan is 12 months but you manage to sell the property in six, you will only pay interest on the loan over the six months, making it a considerably cheaper form of finance than first expected.

There is also usually no early repayment charges (ERCs) with a bridging loan, so you will not be penalised if you repay the loan early. It is important to note that each lender is different so it is vital that you check the full terms of your bridging loan before applying and this is something that your broker can help check for you.

Do you pay monthly payments on a bridging loan?

No, typically with a bridging loan there are no monthly repayments during the loan term, the finance is simply repaid at the end of the loan.

For example, if you have used the bridging loan to purchase a buy to let at auction with the plan to renovate the property and then sell on, you may not have to make any repayments during the renovation work but when the property is sold on, the loan and interest will be repaid then.

Whether or not there are any monthly costs for you to pay will depend on which lender you choose, and your broker will be able to discuss this with you to ensure the deal you are considering is suitable for your ongoing plans.

What happens at the end of the bridging loan?

If you reach the end of the bridging loan, there are few things that could happen:

  • You have sold the property ahead of the end of your term and you are able to repay the loan in one lump sum and if needed you are now able to refinance the property onto a long term finance such as a residential or buy to let mortgage.
  • You haven’t been able to sell the original property or there have been delays to your project. In this scenario we recommend that you firstly speak to your broker ahead of time as we will be able to review options for you.

If speed is the priority, a bridging loan can provide a very fast form of finance and with a range of lenders and products to choose from, it could be the right solution for your short term needs.

Talk to us on 01923 250090 or get started online here to start your application and discover if a bridging loan could work for you.