Bridging Loan Guide

Complete Guide to Bridging Finance in the UK

1. Introduction to Bridging Loans

Bridging finance is a short-term funding solution designed to provide immediate capital where timing, flexibility, or complexity prevents access to traditional bank finance.

A bridging loan “bridges” the gap between:

• Purchase and refinance

• Acquisition and sale

• Development and stabilisation

• Completion and long-term funding

Bridging loans are commonly used across:

• Real estate acquisitions

• Auction purchases

• Refurbishment projects

• Chain break situations

• Planning uplift opportunities

• Corporate cashflow gaps

• Asset repositioning strategies

Unlike conventional term lending, bridging finance is primarily exit-driven rather than income-driven.

2. What is a Bridging Loan?

A bridging loan is a secured short-term loan, typically ranging from:

• 3 to 24 months

• Occasionally up to 36 months in structured situations

It is usually secured against:

• Residential property

• Commercial property

• Mixed-use assets

• Land (with or without planning)

• Development sites

• Investment portfolios

Bridging lenders focus primarily on:

• Asset value

• Loan-to-value (LTV)

• Exit strategy

• Borrower experience

3. Types of Bridging Loans

3.1 Regulated Bridging Loans

Used when the borrower or immediate family occupies the property.

3.2 Unregulated Bridging Loans

Used for investment, commercial or corporate purposes.

3.3 First Charge Bridging

The lender holds primary security.

3.4 Second Charge Bridging

Placed behind an existing mortgage.

3.5 Open Bridge

No fixed exit date (less common).

3.6 Closed Bridge

Fixed, defined exit date (lower risk profile).

4. How Bridging Loans Work

Step 1 – Asset Assessment

Valuation conducted to determine open market value.

Step 2 – Loan Structuring

• LTV agreed (typically 60–75%)

• Interest structure agreed

• Term agreed

• Exit defined

Step 3 – Legal Due Diligence

Solicitors appointed by both parties.

Step 4 – Completion

Funds released — often within 5 to 21 days (depending on complexity).

5. Key Bridging Loan Terminology

Understanding bridging terminology is critical:

Loan-to-Value (LTV) – Loan amount as percentage of property value.
Gross Loan – Total facility including rolled interest and fees.
Net Loan – Amount borrower receives after deductions.
Rolled Interest – Interest retained upfront and repaid at exit.
Retained Interest – Interest deducted at completion.
Serviced Interest – Monthly interest payments.
Redemption – Repayment of loan.
Exit Strategy – How loan will be repaid.
Day-One Advance – Initial capital released.
Refurbishment Facility – Additional drawdown for works.

6. Bridging Loan Costs Explained

Bridging loans are priced higher than conventional term loans due to speed, flexibility and risk.

6.1 Interest Rates

Typically:

• 0.55% to 1.25% per month

• Equivalent to 6.6% – 15% annually (simple rate basis)

Pricing depends on:

• LTV

• Asset quality

• Borrower profile

• Exit certainty

6.2 Arrangement Fee

Usually 1% – 2% of the gross loan.

6.3 Exit Fee

Sometimes 1% (not always applicable).

6.4 Valuation Fee

Paid by borrower.

6.5 Legal Fees

Borrower typically covers both sides’ legal costs.

6.6 Monitoring Fee

Applicable for refurbishment/development bridges.

7. Example – Bridging Loan Structure

Property Value: £5,000,000
LTV: 70%
Loan: £3,500,000
Rate: 0.75% per month
Term: 12 months

Monthly Interest: £26,250
Annual Interest: £315,000

Total Repayment (excluding fees):
£3,815,000

This illustrates why bridging is used strategically — not as long-term funding.

8. Common Use Cases

8.1 Auction Purchases

Completion required within 28 days.

8.2 Heavy Refurbishment

Properties unmortgageable in current condition.

8.3 Planning Uplift

Acquire, secure planning, refinance.

8.4 Chain Break

Residential purchase where sale delayed.

8.5 Development Exit

Refinancing development loan before stabilisation.

8.6 Corporate Opportunity

Time-sensitive acquisition.

9. Exit Strategies

The exit is the most critical element of bridging finance.

Common exit routes include:

• Sale of asset

• Refinance to term mortgage

• Development finance take-out

• Asset stabilisation and commercial refinance

• Portfolio refinance

Professional lenders assess:

• Realistic GDV

• Refinance metrics

• Market liquidity

• Time feasibility

10. Bridging vs Development Finance

Bridging is often used prior to development finance.

11. Risk Considerations

Bridging loans carry higher risk due to:

• Short timeframes

• Market volatility

• Exit dependency

• Higher cost structure

Risk mitigation includes:

• Conservative LTV

• Clear refinance path

• Asset liquidity assessment

• Professional valuation

• Sensitivity modelling

12. When Should You Use a Bridging Loan?

Bridging finance is suitable when:

• Speed is critical

• Traditional lenders decline

• Asset needs repositioning

• There is defined exit visibility

• Capital arbitrage opportunity exists

It is not suitable for:

• Long-term buy-to-hold without refinance

• Weak exit strategy

• Overleveraged positions

13. Institutional Underwriting Approach

At Esteema Capital Partners, bridging finance is structured through:

• Capital-stack alignment

• Exit modelling

• Risk stress testing

• Liquidity scenario analysis

• Lender matching by asset profile

We focus on:

• Cost efficiency

• Execution certainty

• Exit clarity

• Downside protection

14. Final Considerations

Bridging finance is a powerful capital tool when deployed correctly. It provides flexibility and speed — but requires disciplined underwriting and a clear exit framework.

Used strategically, it enables:

• Capital efficiency

• Asset repositioning

• Planning uplift capture

• Opportunistic acquisitions

• Portfolio restructuring

The key is not access to capital — but structuring it intelligently.

Bridging finance should always be evaluated within a broader capital strategy.
Each transaction requires careful structuring, cost modelling, and exit validation to ensure capital efficiency and downside protection.

Bridging Loan Costs & Structure

Commercial Framework & Capital Structuring

Understanding cost structure is critical before entering into a bridging facility.

Interest Structure

Bridging interest is typically charged monthly and structured in one of three ways:

Rolled Interest
Interest accrues and is repaid at exit.

Retained Interest
Interest for the full term deducted at completion.

Serviced Interest
Monthly interest payments made during term.

Monthly rates generally range between:

0.55% – 1.25% per month
(6.6% – 15% simple annual equivalent)

Pricing depends on:

• Loan-to-Value

• Asset quality

• Borrower experience

• Exit certainty

• Market conditions

Arrangement & Exit Fees

Typical fees include:

• Arrangement fee: 1% – 2% of loan

• Exit fee: 0% – 1% (varies by lender)

• Legal fees: Borrower covers both sides

• Valuation fee: Paid upfront

• Monitoring fee (if refurbishment involved)

Understanding gross vs net loan is essential.

Gross vs Net Loan

Gross Loan
Includes rolled interest and fees.

Net Loan
Actual capital received by borrower.

Example:

Property Value: £4,000,000
LTV: 70%
Loan: £2,800,000
Rate: 0.75% per month
Term: 12 months

Annual Interest: £252,000

If rolled, repayment at exit becomes £3,052,000 (excluding fees).

Loan-to-Value Matrix

Typical LTV thresholds:

• Prime residential: up to 75%

• Commercial property: 60–70%

• Land without planning: 50–60%

• Development sites: case-specific

Higher LTV generally results in higher pricing.

Cost Sensitivity

Because bridging loans are short-term, delays materially increase cost.

Exit slippage must be modelled conservatively.

Professional structuring considers:

• Refinance valuation assumptions

• Time extension scenarios

• Market liquidity

• Stress interest exposure

Bridging finance should be deployed where return justifies cost.

Bridging Loan Process & Documentation

Execution Framework & Completion Pathway

Bridging finance is execution-sensitive. Timelines depend on preparation and document readiness.

Step 1 – Initial Assessment

• Asset details reviewed

• Borrower profile assessed

• Exit strategy validated

• Indicative terms issued

Step 2 – Valuation

An independent RICS valuation is instructed.

Valuation confirms:

• Open market value

• Marketability

• Liquidity

• Comparable evidence

Step 3 – Legal Due Diligence

Solicitors conduct:

• Title review

• Charge registration

• Corporate structure verification

• Director guarantees (if applicable)

Step 4 – Completion

Upon satisfaction of conditions:

• Loan documents executed

• Security registered

• Funds released

Completion timelines typically range:

5–21 working days
(Complex cases may extend)

Required Documentation

Typical borrower documents include:

• ID & KYC

• Corporate structure chart

• Bank statements

• Asset schedule

• Planning documents (if applicable)

• Exit evidence

• Valuation report

• Schedule of works (if refurbishing)

Preparation materially accelerates funding.

Common Delays

• Incomplete title

• Planning uncertainty

• Unrealistic exit assumptions

• Slow legal response

• Complex ownership structures

Institutional execution requires early alignment between borrower, lender and legal advisors.

Bridging Loan – Frequently Asked Questions

1. What is a Non-Status Bridging Loan?

A non-status bridging loan is a facility where the lender places primary reliance on:

• The value of the security property

• The Loan-to-Value (LTV)

• The credibility of the exit strategy

Rather than:

• Personal income multiples

• Long-term affordability assessments

However, lenders will still conduct identity verification, source of funds checks, and basic credit assessment.

2. Does a Non-Status Bridging Loan Ignore My Credit Profile?

Not entirely.

While income multiples are not the primary underwriting focus, lenders may still review:

• Credit history

• Adverse credit events

• Bankruptcy or insolvency records

• Previous loan performance

Severe credit impairment may affect pricing or approval.

3. How Is the Loan Repaid?

Bridging loans are typically repaid through a defined exit strategy, such as:

• Sale of the property

• Refinance onto a term mortgage

• Portfolio refinancing

• Asset stabilisation and commercial lending

The exit strategy must be realistic, time-feasible, and supported by evidence.

4. Is My Home at Risk If I Default?

If the bridging loan is secured only against an investment property and no additional security or personal guarantee over your residence is provided, then the lender’s primary recourse is against the secured investment property.

However:

• If a personal guarantee is provided, liability may extend beyond the secured asset.

• If cross-collateralisation is involved, other properties may be at risk.

Borrowers should always review security documentation carefully before completion.

5. What Is the Difference Between Regulated and Unregulated Bridging?

Regulated Bridging Loan
Applies when the property is or will be occupied by the borrower or immediate family.

Unregulated Bridging Loan
Applies to investment or commercial property transactions.

Regulated bridging loans are subject to stricter consumer protection requirements.

6. How Quickly Can a Bridging Loan Complete?

Typical completion timeframes:

• 5–10 working days for straightforward cases

• 10–21 working days for more complex cases

Delays usually arise from:

• Legal title issues

• Slow valuation access

• Incomplete documentation

Preparation significantly accelerates completion.

7. What Is the Maximum Loan-to-Value (LTV)?

Typical LTV ranges:

• Residential investment: up to 75%

• Commercial property: 60–70%

• Land without planning: 50–60%

Higher LTVs may be available in structured scenarios but at higher pricing.

8. How Is Interest Charged?

Interest may be structured as:

• Rolled interest (paid at exit)

• Retained interest (deducted upfront)

• Serviced interest (paid monthly)

Rates generally range from 0.55% to 1.25% per month, depending on risk profile.

9. Can I Repay the Loan Early?

Most bridging facilities allow early redemption.

However:

• Some lenders apply minimum interest periods (e.g., 3–6 months).

• Exit fees may apply depending on facility terms.

Terms should be reviewed carefully before drawdown.

10. What Happens If My Exit Is Delayed?

If the exit is delayed:

• An extension may be requested.

• Additional fees or higher interest may apply.

• A formal re-underwrite may be required.

Failure to repay at term expiry may lead to enforcement action.

Exit contingency planning is critical at the outset.

11. Do I Need a Personal Guarantee?

In most corporate borrowing structures:

• Directors are required to provide personal guarantees.

The extent of liability depends on:

• Loan structure

• Security package

• Negotiated terms

12. What Security Does the Lender Take?

Security typically includes:

• Legal charge over the property

• Debenture over company (if corporate borrower)

• Personal guarantee

• Assignment of rental income (if applicable)

Security structure varies by lender and transaction complexity.

13. Are Bridging Loans Expensive?

Bridging loans are more expensive than traditional bank loans due to:

• Short-term nature

• Speed of execution

• Higher perceived risk

• Flexibility

They are designed for short-term capital deployment, not long-term holding.

14. Is Bridging Finance Suitable for Buy-to-Hold Investment?

Generally no.

Bridging finance is designed for:

• Transitional periods

• Asset repositioning

• Planning uplift

• Short-term opportunity capture

Long-term holding is usually better suited to term lending.

15. Can Bridging Finance Be Used for Refurbishment?

Yes.

Light and heavy refurbishment bridging facilities are available.

Lenders may:

• Release funds in stages

• Monitor works

• Retain refurbishment drawdown

Detailed cost schedules are typically required.

16. What Documents Are Required?

Typically:

• ID & KYC

• Corporate structure

• Bank statements

• Asset details

• Valuation

• Exit evidence

• Schedule of works (if applicable)

Complete documentation materially improves speed.

17. Can Bridging Be Used for Auction Purchases?

Yes.

Bridging loans are frequently used for:

• 28-day auction completion

• Below-market-value purchases

• Time-sensitive acquisitions

Speed is one of the primary advantages.

18. What Are the Main Risks of Bridging Finance?

Key risks include:

• Exit delays

• Market downturn

• Over-optimistic refinance assumptions

• Cost overruns

• Interest accumulation

Professional structuring and conservative modelling reduce risk exposure.