Bridging finance is a popular tool among UK property investors and developers for funding time-sensitive purchases, refurbishments, and project completion. But not all bridging loans are created equal. Choosing the right lender and deal structure is crucial to protecting your profit margin and avoiding delays or penalties.
Below are the top 18 things you should watch out for when comparing or applying for a bridging loan in the UK:
1. Speed of Funding
Time is usually a critical factor in bridging finance. Ask how quickly the lender can complete – some can fund within a week, others may take over a month. If you’re buying at auction or securing a development site, timing can make or break the deal.
2. Monthly Interest Rate
Bridging loans charge interest monthly, not annually. Rates typically range from 0.6% to 1.5% per month. A difference of even 0.1% can significantly affect total costs over 6 to 12 months.
3. Rolled-Up vs Serviced Interest
Decide whether you want to roll up the interest (pay all at the end) or service it monthly. Rolled-up interest helps cash flow but adds to your exit burden. Some lenders allow both options – choose what aligns with your project plan. However, serviced interest option is usually more expensive and involved affordability due diligence.
4. Loan-to-Value (LTV) Ratio
Most bridging lenders offer LTVs between 65% and 75% of the property’s value. For heavy refurbishments or land purchases, the maximum LTV may be lower. Know how much equity you’ll need upfront.
5. Exit Strategy Requirements
Every lender will want a clear, realistic exit plan. This could be a sale, refinance to a mortgage, or development sale proceeds. Weak exit plans can lead to rejected applications or higher rates.
6. Valuation Process
Ask who handles the valuation, how long it takes, and whether it’s desktop or physical. Delays in valuation are a common cause of funding holdups. More importantly, ask if the lender / valuer will be amenable to re-keying for other potential lenders.
7. Arrangement Fees
Typically 1% to 2% of the loan amount, this fee is charged upfront or added to the loan. Make sure you understand how it’s calculated and when it’s due. This is usually deductible from the gross loan facility amount.
8. Exit Fees
Some lenders charge an exit fee (often 1% of the loan), especially on cheaper deals. Check if this applies – it can wipe out savings made on headline interest rates.
9. Early Repayment Charges (ERCs)
Not all bridges are “penalty-free” if repaid early. Clarify whether early repayment saves you money or if a minimum interest period applies (e.g. 3 or 6 months regardless of when you exit).
10. Legal and Admin Costs
In addition to your solicitor’s fees, bridging loans come with lender legal costs, admin charges, and possibly redemption fees. Request a full breakdown of all fees before committing.
11. Credit History Flexibility
Bridging lenders are more flexible than banks, but some still run credit checks. If your credit isn’t perfect, use a lender or broker who specialises in adverse credit bridging loans.
12. Refurbishment or Development Experience
If you’re doing heavy works, lenders may ask for proof of your experience or require you to use registered contractors. First-time developers may face stricter terms or lower LTVs.
13. Planning Permission (If Applicable)
For development bridging, lenders will want sight of planning permissions and building regs. Make sure approvals are in place to avoid delays or deal rejection.
14. Stage Payments (Drawdowns)
If you’re doing major works, check if the lender offers staged funding releases – helpful when you need funds in phases (e.g. after completing foundations or roofing).
15. Property Type and Location
Some lenders don’t lend on non-standard construction (e.g. concrete, steel frames) or rural plots. City-centre flats may also have restrictions. Ensure your property type is acceptable.
16. Second Charge Bridging
If you already have a mortgage on the property and don’t want to remortgage, you may need a second charge bridge. Not all lenders offer this – confirm early.
17. Regulated vs Unregulated Loans
If you’re bridging your own home, the loan will be regulated by the FCA. For investment properties or limited companies, it’s usually unregulated. Ensure the lender is authorised if needed.
18. Broker Fees
If using a broker, clarify their fee upfront – it’s often 1% of the loan but varies. Make sure it’s included in your cost comparison.
Bonus Tip: Check Lender Reputation
Ask around or check online reviews and forums. A lender with poor communication or slow underwriting can cost you time – and money – especially in high-stakes projects.
Final Thoughts
Bridging loans are powerful tools for investors and developers, but only if structured right. Always compare multiple lenders, scrutinise the full cost breakdown, and plan your exit carefully. Use a reputable broker if you’re new to bridging – they can match you with the right lender for your project type, speed requirements, and risk profile.
Need help structuring a bridging loan for your next investment or refurbishment? Get in touch with bborroww.com to explore your options.