Answers · UK 2025/26
What is a bridging loan and when is it used in property purchases?
A bridging loan is a short-term, high-cost loan used to 'bridge' a funding gap in property transactions -- typically when buying a new property before selling an existing one, or at auction where completion is required within 28 days. Monthly interest rates of 0.5--1.5% make them expensive for anything but short-term use.
Full answer
A bridging loan is a short-term secured loan, typically lasting 1--24 months, designed to provide immediate liquidity when a conventional mortgage is not available or fast enough. The loan is secured against property (existing or being purchased) and repaid either by the sale of that property or by refinancing onto a long-term mortgage. **Common uses in property** 1. **Chain break** -- You find your ideal home but your existing home has not yet sold. A bridging loan funds the purchase; you repay it when your sale completes. 2. **Auction purchases** -- Auction completions typically require 28 days, too fast for a standard mortgage. A bridging loan meets the deadline; a buy-to-let or residential mortgage replaces it afterward. 3. **Uninhabitable property** -- Properties without a working kitchen or bathroom are unmortgageable. A bridging loan funds purchase and renovation; a standard mortgage replaces it once habitable. 4. **Probate and inheritance** -- Funding inheritance tax bills or buying other beneficiaries out of an inherited property before sale. **Costs -- a critical consideration** Bridging loans are significantly more expensive than mortgages: - Monthly interest: typically 0.5%--1.5%/month (6%--18% annualised) - Arrangement fee: 1%--2% of loan value - Exit fee: sometimes 1% on repayment - Valuation, legal, and broker fees **Worked Example** Bridging loan: £200,000 at 0.85%/month for 6 months - Monthly interest: £200,000 x 0.85% = £1,700 - Total interest over 6 months: £10,200 - Arrangement fee (1.5%): £3,000 - **Approximate total cost: £13,200+** **Open vs closed bridging** - **Closed bridge**: Fixed repayment date (exchange contracts already in place). Lower risk to lender, usually lower rate. - **Open bridge**: No fixed repayment date (typically up to 12 months). Higher risk, higher rate. **Key risks** - If the exit (sale or refinance) does not materialise, costs escalate rapidly - Rolled-up interest compounds monthly - Property may be repossessed if the loan is not repaid Always use a specialist broker and obtain independent legal advice before entering a bridging loan agreement.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.