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What is a bridge loan?

Bridge loans explained

Victoria Russell
Written by  Victoria Russell
5 min read
Updated: 06 Feb 2024

A bridge loan can be a good solution for short-term borrowing. Our guide covers how bridge loans work so you can decide if it’s the right choice for you

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 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.

Woman using laptop in office

How bridge loans work

Bridge loans are not one-size-fits-all; they come in different forms to suit various needs:

  • First Charge and Second Charge: 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.

  • Fixed or Variable Interest: With fixed rates, you know exactly what you're paying each month, but it might cost more. Variable rates could save you money but are unpredictable.

  • Open Bridge Loan: This is for the optimists who haven't sold their home yet but are confident they will within a year.

  • Closed Bridge Loan: For the planners who have a buyer lined up and know exactly when they'll have the funds.

Considerations before getting a bridge loan

Before you leap into a bridge loan, consider the following:

  • The loan is secured against your property, so there's a risk involved.

  • The short-term nature of the loan means you need a solid plan to pay it back quickly.

  • Lenders will want to see your exit strategy, which could affect your rates. It's important to have an exit strategy in place, such as having an offer to buy your property or a remortgage agreement in principle.

When to get a bridge loan

Bridge loans might be a good fit if you're:

  • Stuck in a property chain.

  • Snapping up an auction find.

  • Facing temporary cash flow issues.

  • Recovering from a mortgage rejection.

  • Renovating a fixer-upper to make it habitable.

Do banks offer bridging loans?

While some high street banks might offer bridge loans, they're more commonly found through secured loan providers or specialist banks.

Services like MoneySuperMarket can help you compare options across the market.

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 move at lightning speed, providing funds in as little as 72 hours, while others take a more leisurely couple of weeks. Remember, secured loans need extra checks and paperwork.

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.

Cost of a bridging loan

The costs associated with bridge loans can vary, but you might encounter administration, arrangement, legal, valuation, and broker fees.

Alternatives to bridge loans

If a bridge loan doesn't seem right for you, consider these alternatives:

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.

Bridge loans can be a powerful tool in your property purchasing arsenal, offering a swift and flexible means to secure your next home. However, with high stakes and costs, it's crucial to tread carefully and consider all your options. Whether you opt for a bridge loan or an alternative route, make sure it's a decision that keeps you financially afloat.

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