Bridging finance is short-term borrowing secured against property. It is designed to cover a gap: between buying and selling, between purchase and refinancing, or between starting work on a property and it being ready for a long-term lender. Because it is fast and flexible, it is widely used in commercial property. Because it is short-term and relatively expensive, it is not something to enter into without a clear plan.
This guide explains how bridging works and what to think about before you use it.
When bridging finance is used
Some of the most common situations include:
- Auction purchases. Auction contracts usually require completion within a fixed period, often too short for a commercial mortgage. Bridging allows completion, with a mortgage or sale following later.
- Chain breaks and quick completions. Securing a property before the sale of another asset has completed.
- Properties that need work. Many term lenders will not lend on a building that is unlettable or in poor condition. Bridging funds the purchase and works, then the property is refinanced once it is let or improved.
- Buying before planning. Acquiring a site or building while planning permission is pursued, with development finance or a sale as the exit.
- Raising capital quickly. Borrowing against a property you already own to fund a time-sensitive opportunity elsewhere.
The exit is everything
A bridging loan has to be repaid at the end of its term, and lenders want to know how before they lend. This is the exit. The most common exits are:
- Sale of the property, or of another asset
- Refinance onto a commercial mortgage, investment mortgage or development facility
- Receipt of funds from elsewhere, such as an inheritance or the completion of another deal
A credible exit is usually the single most important part of a bridging application. If the plan is to refinance, lenders will want to be satisfied that a term lender is realistically going to lend. If the plan is to sell, they will want to understand the market and the timescale. A vague exit is the most common reason a bridging enquiry stalls.
How interest is charged
Bridging interest is usually quoted monthly rather than annually, reflecting the short term. There are typically three ways it can be handled:
- Serviced. You pay the interest each month, as you would with a mortgage.
- Retained. The interest for the whole term is calculated up front and deducted from the loan, so nothing is paid monthly. You receive less on day one but have no monthly outgoing.
- Rolled up. Interest accrues and is added to the balance, all repaid at the end alongside the capital.
Which is available depends on the lender and the deal. Retained and rolled-up interest suit borrowers with no income from the property during the term, such as during refurbishment, but they mean the amount repaid at the exit is larger.
Fees and costs
Alongside interest, bridging commonly involves an arrangement fee, a valuation fee, legal fees for both sides and sometimes an exit fee. Some lenders also charge if the loan runs past its agreed term. Costs vary considerably between lenders and are usually higher than for term finance, which is why bridging is a tool for specific situations rather than a substitute for a mortgage. Always ask for a full illustration of the total cost over the expected term.
Term and repayment
Bridging terms are usually measured in months. Many lenders allow early repayment without penalty after a minimum period, but this varies. If your exit is likely to slip, it is far better to arrange a longer term at the outset than to find yourself in default.
What lenders want to see
- The property being used as security and its value
- How much you need and for how long
- What the money is for
- The exit, and evidence that it is realistic
- Details of any works planned and their cost
- Who the borrower is and their experience
- Your ability to service interest, if that is the structure
Many bridging lenders place more weight on the security and the exit than on personal income or trading history, which is part of why bridging can be arranged for situations a term lender would not consider.
Regulated and unregulated bridging
Whether a bridging loan is regulated depends on the circumstances. Broadly, loans secured on a property that you or a family member live in, or intend to live in, may be regulated. Loans for business or investment purposes on commercial or investment property are often unregulated. The distinction affects the protections that apply and the process, and a specialist will confirm which applies to your situation.
Where FundingFrame fits
FundingFrame is not a lender or a broker. Our checker asks the questions a bridging specialist would ask first (the security, the amount, the term, the purpose and, above all, the exit) and structures your answers into a Deal Snapshot. Where appropriate, we introduce it to a specialist commercial finance broker who can discuss the options with you.
Key points
- Bridging is short-term, secured borrowing designed to cover a gap.
- Common uses include auctions, quick completions, properties needing work and buying before planning.
- The exit (sale, refinance or other funds) is the most important part of any bridging enquiry.
- Interest is quoted monthly and can be serviced, retained or rolled up.
- Fees are usually higher than for term finance; get the total cost over the expected term in writing.
- Whether a loan is regulated depends on the property and its use; a specialist can confirm.