Bridge loans explained
A bridge loan can be a good solution for short-term borrowing. Our guide covers how bridge loans work so you can decide if they are the right choice for you.
Key takeaways
A bridge loan is used to bridge the gap between selling something and buying something new
Bridge loans offer a quick financing solution but come with risks
They are usually used for house sales, including for those in a property chain, buying at auction, facing cash flow issues, recovering from mortgage rejection, or renovating a property
What is a bridge loan?
A bridge loan, also known as a ‘bridging loan’, is a type of loan that’s taken out for a short period of time. It’s to cover the gap between buying and selling something until you secure the money you need – usually to help you buy a new home before you’ve sold your current property.
Like other types of secured loan, bridge loans are secured against a valuable asset, usually your property, meaning if you struggle to keep up with your loan repayments your home could be at risk.
Why might you need a bridge loan?
Bridge loans might be an option if you’re:
Stuck in a property chain.
Looking to buy a property at auction
Facing temporary cash flow issues.
Recovering from a mortgage rejection.
Renovating a fixer-upper
What to consider before taking out a bridge loan
Before you apply for a bridge loan, consider the following:
The loan is secured against your property, so there's a risk involved
These loans are short-term so you will need the money to pay it back quickly
Lenders will want to see you have a clear plan to pay back the money
How much do bridging loans cost?
The cost of a bridge loan will depend on lots of different factors including:
The amount of money you’re borrowing
The length of the loan
The reason you need the loan for
What the interest rate is set at (or if it’s variable)
How much the provider charges
Any extra costs added to the loan, such as administration, arrangement, legal, valuation, and broker fees
How long will it take to get a bridge loan?
The time it takes to get your hands on a bridge loan can vary. Some lenders might transfer the money within 72 hours but others could take a few weeks.
If your loan application is relatively straight forward, the money will be with you sooner than those who need to provide extra paperwork.
Do banks offer bridging loans?
Some high street banks might offer bridge loans, but they're more commonly found through secured loan providers or specialist banks. We can help you compare options across the market in minutes when you use our comparison tools.
Are bridge loans high risk?
The main risk associated with bridge loans is that you are unable to pay the loan back and then your property is repossessed. Therefore before you apply for one, you’ll have to carefully consider how you will pay it back.
What are the different types of bridge loan?
Bridge loans come in different forms, here are the most common:
These legal agreements determine who gets paid first when a property is sold. If there is an existing mortgage, the bridge loan becomes a second charge, and if there isn't, it becomes a first charge.
With fixed interest rates, you know exactly what you're paying each month, but it might cost more. Variable rates can go up or down.
This is for homeowners who haven't sold their property yet but are confident they will within a year.
For those with a buyer lined up who know exactly when they'll have the funds.
First charge and second charge
Fixed or variable Interest
Open bridge loan
Closed bridge loan
Pros and cons of bridge loans
Advantages of bridge loans include:
Speed: They offer quick access to funds
Flexibility: You'll find flexible repayment plans
Deferred payment: You might not have to pay anything until the term ends
However, there are downsides:
High interest: Rates are typically steep
Fees: Expect various charges such as administration fees, arrangement fees, legal fees, valuation fees, and broker fees
Risk: You could lose your home if you can't repay
Alternatives to bridge loans
If a bridge loan doesn't seem right for you, consider these alternatives:
A potentially lower-cost option with more flexible terms, although this won’t work for everyone.
If you need to free up some money, remortgaging is an option. You could also take out a second mortgage on your home. Both of these options need serious financial consideration.
Taking out a standard personal loan is another option, and they are available from most high street banks although the amount on offer could be lower.
A trusted person pledges to cover your loan if you can't. They are then jointly responsible for paying it back
A generous relative or friend could give you the boost you need for a down payment with a gifted deposit.
Borrowing from family and friends
Remortgaging
Personal loans
Guarantor loans
Gifted deposits
Other useful guides
For more information on navigating the loan landscape, check out MoneySuperMarket's guides on short-term bad credit loans, the differences between unsecured vs secured loans, and how to apply for a loan guide.
Comparing Bridging Loans with MoneySuperMarket
MoneySuperMarket provides a comparison service that can help you sift through the bridging loan market without impacting your credit score, thanks to a soft search. As a credit broker, MoneySuperMarket receives a fee from lenders, not from customers, ensuring that your best interests are at the heart of their service.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers
