What is a bridging loan?
Key takeaways
A bridging loan is used to bridge the gap between selling something and buying something new
Bridging loans are usually used for to buy new homes, for those in a property chain, buying at auction, facing cash flow issues, recovering from mortgage rejection, or renovating a property.
They are short-term loans and come with an arrangement fee and charges for valuation.
What is a bridging loan?
A bridging loan, also known as a ‘bridge loan’, is a short-term loan used to cover the gap between buying and selling something until you can secure the money you need.
Borrowers usually use bridging finance to buy a new home before they’ve sold their current property.
Like other types of secured loan, bridging loans are secured against a valuable asset, usually your current home, meaning if you struggle to keep up with your loan repayments your home could be at risk.
Why might you need a bridging loan?
Bridging loans might be an option if you’re:
Stuck in a property chain and waiting to move into a new house
Looking to buy a property at auction
Facing temporary cash flow issues
Recovering from a mortgage rejection
Renovating a fixer-upper
Do I need a bridging loan?
Before you apply for a bridging loan, consider the following:
The loan is secured against your property, so there's a risk involved to your current home
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 make the repayments and pay back the money
Bridge loan lenders often ask for extra fees and charges
How much do bridging loans cost?
The cost of a bridging loan will depend on lots of different factors including:
The loan amount
The length of the loan
The value of an old home and a new property
Your credit history and personal finances
The reason you need the loan for
What the monthly interest rate is set at (or if it’s variable)
How much the loan 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 bridging loan?
The time it takes to get your hands on the lump sum after a bridge loans offer is made 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 bridging 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.
What are the different types of bridging loan?
Bridging loans come in different forms, here are the most common:
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 bridging loan, and if there isn't, it becomes a first charge.
Fixed or variable Interest
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.
Open bridging loan
This is for homeowners who haven't sold their current home yet but are confident they will within a year.
Closed bridging loan
For those with a buyer lined up for their old home who know exactly when they'll have the funds.
The pros and cons of bridging loans
Advantages of bridging 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: Monthly interest rates are expensive
Fees: Expect to pay charges such as administration fees, arrangement fees, legal fees, valuation fees, and broker fees
Risk: You could lose your current home if you can't make the repayments on the loan
Alternatives to bridging loans
If a bridge loan doesn't seem right for you, consider these alternatives:
Borrowing from family and friends
A potentially lower-cost option with more flexible terms, although this won’t work for everyone.
Remortgaging
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.
Personal loans
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.
Guarantor loans
A trusted person pledges to cover your loan if you can't. They are then jointly responsible for paying it back
Gifted deposits
A generous relative or friend could give you the boost you need for a down payment with a gifted deposit.
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, which 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
Author
Rebecca Goodman
Personal Finance & Insurance Expert
Rebecca is an award-winning financial journalist with over a decade of experience writing for print and online media. Her mission is to take the jargon out of personal finance and to help everyone...
Reviewer
Alan Cairns
Senior Content Editor
Alan breaks down money, home, and energy topics into plain English to help you save money. Ask him about pound cost averaging or Balkonkraftwerk.
