Glossary · UK
What is Bridging Loan?
A short-term secured loan used to bridge a funding gap in property transactions, typically when buying before selling.
Full Definition
A bridging loan is a short-term secured loan used when a borrower needs funds quickly, typically in a property transaction where they are buying a new property before the sale of their existing one has completed. Bridging loans are arranged rapidly (sometimes within days) but carry high costs: monthly interest rates of 0.5-1.5% are common, plus arrangement fees (typically 1-2% of the loan), exit fees, and legal/valuation costs. Loan terms typically run from 1 to 18 months. Lenders require a clear exit strategy -- the plan for repaying the loan, usually through the sale of a property or a remortgage onto a standard product. Loans are classified as "open" (no fixed repayment date) or "closed" (fixed repayment date, usually lower cost). Bridging finance is also used for auction purchases, uninhabitable properties that standard mortgage lenders will not lend on, land purchases, and development projects. Borrowers must be cautious: if the exit strategy fails (the property does not sell, or the remortgage falls through), the lender can appoint a receiver and take possession of the security. Always compare total cost of credit, not just the headline monthly rate.