How Much Bridging Finance Costs
Trying to find the true costs of a bridging loan? Find out how much you'll typically pay, and ways to reduce your costs, in our expert guide!
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: April 06, 2022
There’s no doubt that bridging loans can be expensive, but whether or not it’s worth the cost depends largely on the reason you need one. In some cases, it may be your only finance option, particularly for fast-moving transactions, such as auction purchases.
In this article, we’ll take an in-depth look at the full range of costs involved with bridging finance, what you can do to minimise them, and how to get the most competitive rates for your circumstances.
The following topics are covered below...
How much does a bridging loan cost
There are many factors that can affect your overall expenditure when it comes to using a bridging loan. The term of the loan has the most dramatic effect on costs, as interest is usually calculated monthly, so the shorter the term, the less you’ll pay.
When used as a short-term finance solution, as intended, they can be an invaluable option for many different circumstances. Below are the major costs that you can expect to pay…
The vast majority of bridging lenders charge an arrangement fee or around 2% of the cost of the loan, although a few may reduce their fees for very large levels of borrowing. An admin fee may also apply, and these vary from one lender to the next.
Fees vary from one to the next, but those with high upfront fees should be avoided. Reputable brokers charge on a success-only basis, whereby you pay nothing if they fail to secure you a loan.
A typical deposit for a bridging loan is around 30-40%, although a few lenders will offer an 80% LTV, reducing the deposit requirement to 20%. It may be possible to borrow as much as 100% LTV in some cases, however, another form of security is typically used in lieu of the deposit.
As bridging loans are secured, the lender will want a valuation of the assets that the loan is secured against, whether that be just the purchase property or additional assets you are using as security. If you are offering multiple assets, a valuation charge is likely to apply to each one assessed. This can range from £250-£1000+ per asset, depending on its value.
In order to access the loan, a drawdown fee, which may also be referred to as an admin fee, is sometimes charged by the lender. Fees vary from one lender to the next and may apply to each drawdown of funds if the loan is accessed in stages.
Some lenders charge a redemption fee to account for the cost of removing the legal charge from your property. This is usually in the region of £100-£150.
An exit fee of around 1% of the total loan value is typically charged on redemption of the loan, although this can vary slightly depending on the lender.
A solicitor will be required to carry out the legal aspect of your bridging loan arrangement. Fees can vary dramatically based on the size and circumstances surrounding the loan.
Interest can be charged in three ways, and it’s important to consider the repayment structure that is most suited to your circumstances. Unlike mortgages, bridging loans can be repaid at any time, meaning that you will only pay interest accrued until the day you repay.
- Monthly interest – You can choose to repay the interest each month, so you’ll only owe the capital repayment at the end of the term.
- Deferred interest – If you choose to defer (or roll-up) the monthly interest charges, they are added to the total loan cost at the end of the term, meaning you repay the capital and all interest accrued over the term at the end.
- Retained interest – With a retained interest loan, the full interest charges are calculated at the beginning of the loan and added to the loan amount. You would borrow over a set term, and repay the total loan and pre-agreed interest charges as a lump sum at the end of it.
What rate to expect
Take a look at the table below to get an idea of the rates currently available for bridging loans. Please note that the rates displayed are monthly ones and these deals are subject to change.
Looking for more rates and deals?
We can match you with a mortgage broker who can provide you with up-to-date bespoke rates and deals from across the entire market and help you secure the best ones available.
Last updated August 2023
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How a specialist broker can save you money on a bridging loan
Expert bridging finance brokers play an incredibly important role in the negotiation of bridging loans, as all applications are considered on their individual merits. Attempting to negotiate this type of finance without industry knowledge could not only reduce your potential for a successful outcome but may leave you vulnerable to higher or less-transparent charges.
The specialist brokers that we work with have knowledge of the entire bridging lender market and know each lenders’ individual preferences in terms of borrower criteria. This means they are well-placed to find you a suitable lender, regardless of the purpose of the loan, your exit strategy, credit status, or your deposit availability.
They will also be able to advise you about how to potentially obtain a larger LTV and/or more competitive rates, as well as find a lender who charges low fees, and avoid unnecessary costs.
In the event that you are unable to repay the loan at the end of the term, some lenders may be willing to extend it, which is likely to incur substantial additional fees.
You should bear in mind that this is by no means an option that all lenders extend, and will very much depend on your circumstances and the flexibility of the individual lender. Many lenders will simply proceed with the repossession process.
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Other things to consider
Here are some other factors that could affect the cost of your finance…
Open vs. closed bridging finance
Closed bridging loans typically have lower interest rates than open bridging loans, as you will have committed to a fixed repayment date and method, therefore minimising the risk to the lender. Closed bridging loans are usually only available to those with an airtight exit strategy, however, for example, an inheritance or an already agreed-upon sale.
Can you pay off a bridging loan early?
Yes, you can, and this is highly recommended, if possible, as it will save you a substantial amount in interest charges. There are no fees for early repayment, unless you repay within the first 30 days, in which case, you would have to pay the full first month’s interest. After 30 days, however, interest is charged daily, and you’ll only pay for the days utilised.
Regulated vs unregulated costs
There are fewer regulated bridging lenders in the market, and therefore your options may be slightly more limited if you’re looking for a loan to buy your dream home, as all owner-occupier purchases must be regulated.
However, the lack of competition in the market will not necessarily mean higher interest rates in this case. As regulated loans are protected by the FCA (Financial Conduct Authority), there is less risk involved for the lender, and therefore rates are typically lower than they are for unregulated bridging loans.
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Speak to a bridging finance expert
We work with a network of expert bridging finance brokers, and our broker matching service can pair you with the most appropriate adviser for you in a matter of minutes. Simply call us on 0808 189 0463 or complete this form, and provide us with as much detail about your needs and circumstances as possible.
We’ll put you in touch with a broker who knows which bridging lender will offer you the most competitive rates, and will negotiate the best deal for your circumstances. There is no charge for the introduction, and the initial advice from the brokers we work with is also entirely free of charge.
All of the brokers in our network offer a success-only fee structure, meaning if they don’t successfully secure you a loan, you’ll have nothing to pay, and any pre-paid fees will be refunded.
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About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!