A bridging loan is a short-term loan secured against property. It’s not a mortgage, but it works in a similar way — just over a much shorter timeframe.
Originally popularised in the 1960s to help homebuyers “bridge” the gap between selling one property and buying another, bridging loans have since become a go-to finance tool for both investors and developers. Lower costs and higher industry standards have helped drive their growing appeal.
Who Uses Bridging Loans?
Bridging loans are designed for speed and flexibility. They’re often used when timing is critical — for example:
- Buying a property before your current home sells
- Funding a renovation or refurbishment
- Clearing short-term arrears while refinancing
- Jumping on a property deal or investment opportunity
Homeowners use them to secure their next move, while developers and investors rely on them to keep projects moving or to take on bigger opportunities. If you’ve ever watched Grand Designs, you’ll know how often a bridging loan can save a stalled project.
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There isn’t a single reason why people take them out — they’re a tailored solution to short-term funding gaps.
Common Uses
1. Buying before you sell
A bridging loan lets you move ahead with your purchase while waiting for your current property to sell.
2. Fixing a broken property chain
If a sale falls through, a bridging loan can keep your purchase alive while you re-list.
3. Buying at auction
Auction rules usually require settlement within 28 days. Mortgages rarely move that fast, but a bridging loan can. Once settled and renovated, you can refinance onto a standard mortgage.
4. Investing in a buy-to-let
If a property isn’t yet tenant-ready, a bridging loan can cover the cost of bringing it up to standard before moving into a longer-term loan.
5. Land purchase
Bridging finance can also fund land acquisitions, with refinancing possible once planning approval is granted.
Types of Bridging Loans
- Open bridge: No fixed repayment date, but usually must be cleared within 12–24 months. More flexible, but more expensive.
- Closed bridge: Fixed repayment date (e.g. waiting for settlement on your sale). Cheaper than open options.
Loans can also be structured as first charge (lender has first claim if you default) or second charge (sits behind an existing loan). First charge loans are generally larger and used for purchases, while second charge loans tend to cover renovations or cash flow.
How Do They Work?
Bridging loans are short-term facilities secured against property. You borrow based on available equity — typically up to 75% of the property’s value. Loan amounts can range from $100,000 through to multi-million dollar facilities.
Interest is charged monthly and usually paid on exit (when the loan is repaid), not through regular instalments.
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Example: You’re buying a home for $900,000. Your savings cover $150,000, but your current property hasn’t sold yet. A bridging loan of $150,000 fills the gap until settlement. When your home sells, you repay the loan plus interest.
Costs and Fees
While interest rates can start as low as 0.5% per month, bridging loans come with several fees:
- Arrangement fees
- Exit fees
- Valuation fees
- Legal costs
Because property acts as security, lenders will usually require you to use a solicitor. Always calculate the total cost — not just the rate.
Pros and Cons
Pros:
- Fast access to funds
- Flexible use (purchase, refinance, development, etc.)
- Helps secure opportunities that would otherwise fall through
Cons:
- Higher interest rates than traditional finance
- Multiple fees to factor in
- Short-term only — you must have a clear exit strategy
Alternatives to Bridging Loans
Depending on your situation, other finance options might suit better:
- Standard mortgages (for long-term borrowing at lower rates)
- Buy-to-let mortgages (for rental properties)
- Remortgaging or equity release
- Second-charge loans
- Commercial mortgages (for non-residential property)
- Business loans or asset finance (for equipment and operations)
- Invoice finance (for businesses needing cash flow)
In many cases, it’s worth speaking with a specialist broker to compare your options.
Final Word
Bridging loans are not a one-size-fits-all product. They can be the perfect tool for seizing time-sensitive opportunities — whether you’re a homeowner, investor, or developer — but they come at a cost. Always weigh up the pros and cons, and make sure you have a clear repayment plan before committing.