Want to close on a property fast?
Real estate doesn’t stand still and neither do property transactions these days. One day a property is on the market, the next day it’s gone. And if traditional financing can’t match your speed, you might just lose your dream property forever.
Here’s the problem…
Traditional mortgages take so long. The underwriting. The appraisals. The mountain of paperwork… Seriously, most conventional loans take 30-45 days just to close. And some take even longer.
But what if you needed to move fast?
That’s where bridging loans come in. Short term financing solutions designed to “bridge the gap” between buying your new property and selling your old one – or securing long term financing.
Today you’ll discover:
- What is a bridging loan in real estate?
- How do bridging loans actually work?
- When should you use a bridging loan?
- The real costs of bridging finance
- Bridging loans vs traditional mortgages
What is a bridging loan in real estate?
Ok, so a bridging loan is EXACTLY what it sounds like.
It’s a short term loan designed to bridge the gap in your finances. Designed SPECIFICALLY for property transactions where time is of the essence and traditional financing is just not going to cut it.
Instead of waiting weeks or months for a regular mortgage to process… Bridging loans like this one here https://bridgeloandirect.co.uk/bridging-loans-northern-ireland can be arranged in DAYS. Which makes them incredibly valuable in competitive markets where properties sell within hours of going on the market.
But here’s the kicker…
Bridging loans are secured against property. Which means the lender has got very solid collateral against which they can lend. No nutty guarantor or director’s loan needed here. This is also why bridging loans are able to be approved so much quicker.
The loans are then repaid once you sell your existing property, or you’ve secured permanent financing.
Think of it this way…
You find THE perfect investment property. You go to auction and win it. The property needs to close in 28 days. Your traditional mortgage won’t be approved in time.
You take out a bridging loan to buy the property, then refinance with a traditional mortgage later.
Pretty smart right?
The UK bridging loan market has BOOMED in recent years. For the first time ever, loan books topped £9 billion in Q3 2024, according to the latest data.
How do bridging loans actually work?
Ok, so let’s dive into exactly how bridging loans work in the real world.
Bridging loans are most often arranged for terms between 6-18 months. You pay interest only, monthly payments during the term of the loan. And at the end you pay off the entire principal balance in one lump sum. This is called a balloon payment.
There are two main types of bridging loan:
- Closed bridging loans have a fixed repayment date. These are used where you have a confirmed sale date for your existing property, for example. The rates on these loans are typically lower because the lender knows exactly when they’ll be repaid.
- Open bridging loans do not have a fixed repayment date. These have slightly higher rates in exchange for flexibility.
Bridging loans require security. Which is usually your existing property, the new property you’re purchasing, or both. Most lenders will loan up to 75% of your property’s value. This is called your Loan-to-Value (LTV) ratio.
When should you use a bridging loan?
Bridging loans aren’t for every property transaction. But there ARE certain situations where a bridging loan is ABSOLUTELY PERFECT.
Breaking the property chain
Property chains are a bloody nightmare!
One house sale falls through, and down the whole chain comes. Bridging loans accounted for a massive 41% of all regulated loans arranged in 2024 according to the latest data. And the majority of these were specifically to break the chain.
A bridging loan completely removes you from the property chain. You are able to buy your new property without having to wait for your old one to sell.
Auction properties
Property auctions move at the speed of light.
You typically have just 28 days to complete once you’ve won a property at auction. A traditional mortgage simply won’t work on that kind of timeline. Bridging loans do.
This is a big reason why property investors and property developers rely so heavily on bridging finance when it comes to auction purchases.
Refurbishment projects
Ok, so here’s one a lot of people don’t know…
Many properties simply can’t get a traditional mortgage because they’re in a pretty poor state. Banks simply won’t lend on properties that are considered uninhabitable.
Bridging loans fill this niche perfectly. Buy the property with a bridging loan, do the refurbishment work, then refinance on a traditional mortgage once the property is habitable.
Pretty much every property developer and house flipper out there uses this strategy on a constant basis.
Investment opportunities
Ok, so every now and then you just get some bloody fantastic investment opportunities.
Either a property is below market value. Or a seller just needs to close quickly, and they offer you a discount. Or whatever. The point is – traditional financing simply can’t move quick enough to capitalize.
Bridging loans let you move fast. Then you can refinance at your leisure.
The real costs of bridging finance
Ok, ok, here’s the thing you need to know…
Bridging loans are more expensive than traditional mortgages. It’s as simple as that.
But the speed and flexibility they offer often justifies the additional cost.
Interest rates on bridging loans generally sit between 0.5% and 1.5% per month. Which works out as roughly 6% to 18% APR. This is quite a wide range, but current interest rates are sitting around 9.5% to 10.95% for most borrowers.
Rates are higher simply because of the higher risk to the lender. The loans are short-term, there’s no income verification, and the whole process is approved much more quickly with less scrutiny.
Additional fees to consider
Interest is only part of the story, too. There are additional fees to expect as well:
- Arrangement fees, usually between 1.5% to 2.5% of the loan amount
- Valuation fees to assess your property’s value
- Legal fees for the loan documentation
- Exit fees charged by some lenders when the loan is repaid
One word of warning… Always look out for “junk fees” added by some lenders, masquerading as underwriting charges. Read the small print!
Bridging loans vs. Traditional mortgages
Ok, how do bridging loans compare against traditional mortgages?
- Speed is the most obvious difference. Bridging loans can be arranged in as little as 5-14 days. Versus 30-60+ days for a traditional mortgage.
- Flexibility is another big point of difference. Bridging lenders focus on the property’s value and your exit strategy. Traditional lenders harp on your income, employment history and credit score.
- Cost is where traditional mortgages obviously come out on top. The monthly payments are lower and the interest rates much, much better.
But remember that bridging loans are not meant to be permanent solutions. They are just a tool to help you solve a short term problem.
Making bridging loans work for you
Done right, bridging loans are a very powerful tool.
They can give you the speed and flexibility you need to make deals that just aren’t possible with traditional financing. Whether you’re buying at auction, breaking a property chain, or just want to take advantage of an investment opportunity – bridging loans make it happen.
BUT they are a tool that you have to use correctly.
A bridging loan needs a very clear exit strategy to work. You need to know how and when you’re going to repay it. Plan it all out BEFORE you take the loan.
The UK bridging market has been growing year after year. Lenders are becoming more competitive and the products they’re offering more sophisticated.
If speed is more important than cost to you… If you NEED to move quickly on a property transaction… If you simply can’t get traditional financing to meet your timeframe…
A bridging loan might just be exactly what you need to help you turn that opportunity into a reality.
