How Does a Bridge Loan Work?
Bridge loans are a short term finance solution commonly used when other types of borrowing, such as a mortgage cannot be accessed. You can usually get a bridging loan for up to 12 months and they can often be arranged in as little as a few days – must faster than a mortgage.
As bridging loans are only intended as a temporary source of funds, you normally have to specify how you will repay the loan when you apply. This is known as your “exit strategy”. For most bridge loans, the exit strategy will be to repay by selling the property on or by getting a mortgage.
Bridging loans are commonly used for things like:
- Buying a property while waiting for an old one to sell
- Auction finance
- Renovation projects (especially property that is deemed unmortgageable)
- Development finance
How to get a bridge loan
Bridging loans are normally only available through intermediaries such as loan brokers. They are not normally offered direct to the public and it is often necessary to use private banks and lenders to access a bridge loan.
To apply for a bridge loan you will usually need:
- A valuation of the property in question
- Details of any additional costs e.g. construction costs
- Details of your income
- An exit strategy
- A credit check
How much does a bridging loan cost?
To take out a bridge loan, you will normally have to pay:
- An arrangement fee (for taking out the loan)
- An exit fee (when you repay the loan – although some lenders do not charge exit fees)
- Monthly interest (there are usually various options for this, including rolled up interest allowing you to pay it all in one go at the end of the loan term)
Bridge loans tend to come with relatively high interest rates, so this is worth considering when deciding how much to borrow and how long for.
Find the best rates on bridge loans
Our bridging loan calculator makes it fast and easy to find the best rates on the bridging finance you need from across the market. That way you can get the money you need at a rate you can afford.