Everything a bridging lender asks about, and everything it charges, follows from the fact that it is lending into a gap and being repaid by whatever closes it.
What it is used for
Most bridges we arrange fall into a few shapes:
- Buying before the long-term money is ready. A chain break, an auction completion, or an off-market deal on a deadline.
- Buying what a mortgage lender will not. A property that is unmortgageable in its current state, or land without planning consent.
- Refurbishing before refinancing. Buy, improve, then refinance onto a term loan at the improved value.
- Buying time at the end of a development. Refinancing development debt so units can sell at the right price rather than a quick one.
A bridge can complete in two to four weeks where a traditional facility takes eight to twelve, and that gap is what wins an off-market deal or holds a chain together. Two weeks is achievable when the valuation and legal work run cleanly; plan on the longer end.
What it lends against
A bridge lends against the property as it is today, not as it will be. For land without consent, that means the open market value of the site as land, not the scheme you intend to build on it, and a valuer will be conservative about hope value. Leverage on land is lower than on a finished property.
Headline loan to value on a bridge is usually quoted gross: the loan includes the retained interest and fees, not just the cash you receive. Two lenders quoting the same percentage can hand over different sums on day one.
Where the exit is a sale, some lenders also value on a restricted basis, what the property would fetch in 90 or 180 days rather than on the open market, and size the loan on that lower figure. Ask which basis the loan is sized on before you compare terms.
Where there are works, some lenders will also fund part or all of the refurbishment in stages, released as the work is done and checked. The day-one advance and the works tranche are separate figures, and it is the day-one figure that decides how much of your own money the purchase needs.
How the interest works
Bridging interest is quoted monthly rather than annually, and on most bridges it is not paid monthly. It is handled in one of three ways:
- Retained. The interest for the whole term is calculated up front and held back from the advance. You pay nothing monthly, but the cash you receive on day one is lower than the headline loan.
- Rolled. Interest is added to the balance each month and paid off at redemption. The loan grows over the term.
- Serviced. You pay the interest monthly, as on a mortgage. This keeps the balance flat but needs income or cash to meet it.
Retained and rolled interest are why the headline loan and the money that actually clears on day one are different numbers. Work from the net figure, not the gross one. Our bridging finance calculator shows both, and what the roll costs by redemption.
The costs beyond the rate
The monthly rate is the number everyone compares. It is rarely the whole cost, and the other lines are where two similar-looking offers part company:
- Arrangement fee. Usually a percentage of the loan, deducted from the advance on day one.
- Exit fee. Some lenders charge a further fee on redemption. Not all do, and it is worth more than a small difference in the monthly rate.
- Minimum interest period. Many bridges charge a minimum number of months' interest even if you repay early. A quick refinance does not always mean a cheap bridge.
- Default interest. A higher rate that applies if the loan runs past its term or the terms are breached. It is the number that matters most if the exit slips, and the one least often read.
- Valuation and legal fees. Paid by you, whether or not the loan completes.
First or second charge
Most bridges take a first charge over the property. A second charge sits behind an existing mortgage, for example to raise money against a property you already own. It usually needs the first lender's consent, it takes longer to arrange, and it is priced higher because the second lender is repaid only after the first.
The term, and why it needs headroom
Terms are short, commonly measured in months rather than years. On a purchase bridge ahead of planning, nine to fifteen months is typical, matched to the determination timetable.
Build in room for the thing that slips. The committee date that moves, the buyer who pulls out and the refinance valuation that comes in late are the common case, not the unlucky one. An extension negotiated late, with a redemption date approaching, is an expensive extension.
The exit is the underwrite
A bridge is priced on how it gets repaid, not only on the property. A sale, a term facility or development finance are all credible exits, but only if the route is established before you draw rather than after.
The strongest position is the refinance already lined up behind the bridge: a term lender or development lender who has seen the case and wants it. Then the event that ends the bridge triggers a refinance that is underway, rather than a fresh search against a deadline. The usual way a bridge goes wrong is the exit arriving later than the term assumed.
Regulated or unregulated
A bridge secured on a property that you or a close family member live in, or will live in, can be a regulated mortgage contract. The test is whether at least 40% of the property is used, or intended to be used, as a dwelling by the borrower or a related person, where the borrower is an individual or trustees. A bridge to a company, or on an investment or development property nobody in the family will live in, falls outside that definition.
The common trap is extra security. Where you borrow as an individual, a lender that asks for a charge over your home as well as the property being bought is adding land that is lived in, and that can bring the loan into regulation. Raise it before terms are agreed, not at the legal stage.
We arrange unregulated bridging only. Regulated vs unregulated bridging covers the distinction in more detail, and the purchase bridge page sets out how we place a purchase ahead of the long-term money.
Sources
- FCA Handbook, PERG 4.4: the regulated mortgage contract definition, including the 40% occupancy test and related persons.
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