Looking to snap up that dream property deal but traditional funding is slow?
Say hello to bridging loans – the ace up the sleeve of savvy investors. There’s just one tiny catch… Bridging Finance has reached a record £9bn+ market size in the UK.
But here’s the problem…
Most investors don’t understand how bridge loans work or why they’re useful. They end up watching deals go by while waiting for a traditional mortgage they won’t be approved for, weeks, if not months.
Meanwhile, the smart money is pouncing with bridging finance:
- Completing in days vs. months
- Purchasing properties at auction
- Fixing and flipping with speed
The best part? You can use the calculator from Bridge Loan Direct to know exactly what your bridging loan will cost you, even before applying. They have an excellent bridging loan calculator that breaks down all the costs so you don’t get any nasty surprises.
What you’ll learn: Understanding exactly how bridging loans work, their true cost, and when you should use them.
- What Are Bridging Loans? (Definitive Guide)
- What is the Real Cost of a Bridging Loan?
- When Do Bridging Loans Make Sense?
- What is the Process for Getting a Bridging Loan?
- Common Mistakes to Avoid When Getting a Bridging Loan
- The Future of the Bridging Finance Market
What Are Bridging Loans?
Bridging loans are short-term financing solutions designed to “bridge the gap” between buying a new property and selling an existing one. They fill a gap when your current mortgage or finance option won’t work.
Picture this:
You found your dream investment property, but your existing home isn’t sold yet, or your traditional mortgage is still in underwriting hell.
And here’s the clincher:
A bridging loan can give you the cash to move forward NOW rather than in three months when your bank finally approves your mortgage.
These loans are short term, typically 6-12 months (some go up to 36 months). Unlike traditional mortgages that seem to go on for eternity, bridging loans can be closed within as little as 5 business days.
Pretty cool, right?
But it’s not just for house chains. Investors use bridging loans for:
- Property auctions, where you need to complete in 28 days
- Renovation projects. Get in, fix up, refinance or sell
- Portfolio expansion, grabbing multiple properties all at once
With the UK bridging loan market growing by 16% in 2024, it’s not slowing down anytime soon.
What is the Real Cost of a Bridging Loan?
Let’s cut to the chase, as promised…
Bridging loans are more expensive than traditional mortgages.
At the time of writing, rates sit between 7% – 10% versus an average of 6.81% for standard mortgages.
Why the eye-watering fees?
Speed and flexibility come at a price. Bridge lenders accept more risk by working fast and turning decisions around in days rather than months.
Bridge lenders allow you to access large funds in days where other lenders struggle to approve in weeks.
The superpower is that same flexibility. Investors use bridging loans for projects and opportunities where a traditional mortgage wouldn’t be accepted:
Imagine this situation:
Say you spot a property worth £300,000 but needs £50,000 in renovations. After works are completed, it’ll be worth £425,000.
A traditional lender won’t touch it in that state. Too much work to value or insure.
A bridging loan? They care about after repair value (ARV). So they’ll fund both the purchase AND the renovation costs.
Now that’s a game-changer.
When Do Bridging Loans Make Sense?
Bridging loans aren’t a silver bullet. They won’t be required for all deals. But when do you need one? Nothing else will do.
Breaking Chains
The buyer of your current property pulls out at the last minute, about to lose your dream property.
Slap on a bridging loan and save the day. Complete your purchase while you find a new buyer for your current property.
Auction Property Purchases
Found an absolute bargain at auction? 28 days to complete. Traditional mortgages just can’t keep up.
Bridging loans were practically made for auction purchases.
Heavy Refurbishments
Banks and traditional lenders don’t like properties that need significant work. No kitchen or appliances? Unlikely to get a loan. Any structural issues? Good luck.
Bridge lenders? They see opportunity in the eyes of others’ pain.
They’ll fund the purchase and the renovation costs. Fix the property up, refinance onto a standard mortgage, or sell for a nice profit.
What is the Process for Getting a Bridging Loan?
Here’s a little-known secret about bridging loans…
Not all lenders are created equal.
Some specialize in residential property, some in commercial. Some love renovation projects while others stick to plain purchases.
Look out for these qualities in a bridge lender:
- The whole point is speed. If they can’t close in 2-3 weeks, move on.
- Good bridging lenders know each deal is unique. Be prepared for them to work WITH your situation rather than put you in a one-size-fits-all box.
- All costs should be known upfront. No nasty hidden fees or surprise charges at closing time.
Local and regional bridging lenders often outperform the big banks in these departments. They understand the market and can make decisions quickly.
Common Mistakes to Avoid
As they say, the devil’s in the details. And with bridging loans, the mistakes are costly, and fast.
Underestimating Holding Costs
It costs money EVERY month your property is “on hold”. Interest, insurance, utilities all add up. If your property takes 6 months to sell rather than 3? Can you really afford it?
No Backup Exit Plan
Your buyer falls through. The refinance is denied. Now what?
Always have a plan B, and even a plan C if you’re smart.
Ignoring Fees
Arrangement fees, exit fees, valuation fees, legal fees. They all add up to thousands.
Add them ALL to your calculations.
The Future of Bridging Finance
Bridging finance isn’t slowing down anytime soon.
House prices are stabilizing and experts expect interest rates to fall further in 2025. Investors are getting antsy, getting ready to pounce.
Drivers of market growth include:
- More property auctions, which are up 45% YoY
- Renovation projects on the upswing
- Portfolio landlords expanding and growing
Regulated bridging is set to go from niche to mainstream as owner-occupiers discover its uses too.
Tech is improving, too. Online applications, automated valuations, faster decisions. What took weeks now takes days.
Wrapping up your bridge finance journey
Bridging loans aren’t right for every situation. But in the right circumstances, they’re an unbeatable tool to unlock real estate opportunities.
They give you the power to:
- Move faster, completing in days rather than months
- Flexibility in funding projects a traditional mortgage wouldn’t touch
- Act when others hesitate, grabbing deals as they appear
The key is knowing when and how to use them.
Run the numbers carefully. Do you have a solid exit strategy in place? Sale of current property? Refinance? Flip? Have a plan B, and even a plan C.
Work with reputable lenders who understand your investment goals.
Do that, and bridging loans become a powerful weapon in your real estate investing arsenal. They let you act on opportunities while the competition is still filling out mortgage applications.
The market waits for no one. Are you ready to move?
