What is a Bridging Mortgage?
- Kien Millington
- Jan 15
- 7 min read
A bridging mortgage, usually referred to as a bridging loan, can help you act like a cash buyer when purchasing property.
Bridging mortgages, or bridging loans, are short-term property financing solutions designed to help borrowers quickly secure funds, often within 12 months.
These loans are commonly used to fund a gap in finance between purchasing a new property and selling an existing one, offering flexibility not typically available with standard mortgages.
Key takeaways:
A bridging mortgage is another word for a bridging loan, a form of short term finance.
They are more flexible and can typically be accessed more quickly than a mortgage, making them popular for time-sensitive purchases or when breaking a mortgage chain.
Bridging mortgages typically last for around 12 months and requires a solid exit strategy, such as proceeds from a property sale.
The application process usually considers the equity in your current property, valuations, and overall financial circumstances.
How much a bridging mortgage costs will depend on your loan-to-value (LTV), term length, and any lender-specific fees.
How Does a Bridging Mortgage Work?
A bridging mortgage is often used to "bridge" the gap between purchasing a new property and selling an existing property.
To explain, it provides a temporary source of funding to help homeowners complete a purchase of a home they may have their eye on or a property in which they’d have to move fast to secure.
With a bridging mortgage, you don’t have to worry about selling your existing property initially or being stuck in between without the necessary funds to hand.
In this post, we’ll guide you through the ins and outs of bridging mortgages and include some examples of just how versatile they can be – we’ll show you:
How they work
What they can be used for
How much they cost
How much you can borrow
Eligibility criteria and how to apply
Assessment
When a homeowner applies for a loan, the lender will assess their financial situation, including the equity in their existing property and the expected sale proceeds.
Approval
If the lender approves the loan, the homeowner can proceed with the purchase of the new property - the loan is then secured against the borrower's existing property.
Repayment/exit strategy
The borrower will need a solid exit strategy in place, which is typically the proceeds from a property sold (which would be the property the loan is secured against). The repayment will differ for each borrower, depending on the terms and criteria of the loan – typically, bridging mortgages span a 12-month term.
Interest and fees
Bridging mortgages come with higher interest rates and fees than mortgages, so it's important to be aware of overall costs when considering bridge finance.
A bridge mortgage can present a higher risk and is not a form of borrowing suited to all – at least without proper knowledge.
Before deciding whether a bridging mortgage is the right option for you, we’ll explain the process further, from the application to the cost and additional fees and how to find the best deals.
What Are Bridging Mortgages Used For?
Here is an overview of what bridging mortgages can be used for:
Property Purchases – The most common use for such a mortgage, as it perfectly fits the in-between stages of purchasing and selling your existing property.
However, it is not just utilised when purchasing a home or residential property – it can be for any type of property, such as property for commercial use.
Refinancing – Bridging mortgages can also be used to refinance an existing property when traditional lending options are not available. This can help homeowners to pay off debts, make improvements to the property, or take advantage of lower interest rates.
Property development – Bridging mortgages can be used when funding development ventures, self-builds, or purchasing land.
Business purposes – Bridging mortgages can be used for business purposes, such as expanding a business, purchasing equipment, or covering operating costs.
2024 Bridging Market Update
The bridging market has had quite a transformation in the past few years. With rates starting at 0.55% per month, the costs aren’t dissimilar from those of a mortgage, and the combination of flexibility, quick turnaround time and less stringent eligibility criteria has led to bridging finance growing in popularity.
It’s now seen as a product in its own right instead of an expensive alternative to long-term finance.
Our finance brokers are seeing more repeat clients, particularly investors who have turned their attention to property flipping considering the slim profit margins the buy to let market has been seeing. HMO conversions have also grown in popularity amid more rigid rental legislation.
According to our team of advisers, a high volume of first-time borrowers already have an understanding of bridging loans before approaching us, showing that bridging is becoming more recognised in the industry.
As bridging finance becomes more mainstream, lenders are reviewing and reducing rates more frequently, offering more flexibility around costs.
Refurbishments - Bridging mortgages are useful in funding property refurbishments or renovations. If you own BTL (buy-to-let) properties, a bridging mortgage can be a good way to improve their value through refurbishment or if you intend to rent them out but they are in an unmortgageable state.
Auction purchases - When it comes to property auctions, if you make a purchase, you will only have 28 days to finalise. Therefore, bidders can use a quick and flexible loan such as a bridge mortgage to secure a property at auction within the time frame.
Bridging mortgages also works for nuanced or more niche circumstances, like funding an extension while awaiting tax-free pension drawdown.
Whatever the situation, with the right broker, you can find a bespoke solution tailored specifically to your circumstances using a bridging mortgage.
What Do Bridging Mortgages Cost?
A bridging mortgage weighs various factors when it comes to cost – for instance, the LTV (Loan-to-value) or the amount you intend to borrow, the length of the loan term, and the chosen lender you borrow from can affect overall costs.
Interest rates can vary from lender to lender – rates are determined by your creditworthiness, the LTV, the value of your property, etc. – so it is important to consider your options and which lender you borrow from.
On top of interest rates, there are some important additional fees to be aware of when it comes to a bridging mortgage:
Arrangement fees
Some bridging mortgage lenders charge an arrangement fee, which can be a percentage of the loan amount or a fixed fee.
Valuation fees
A lender may require a property valuation to assess the value of the homeowner's existing property. Depending on the value of your property, this can cost several hundred pounds. With the help of a broker, you can get an online or drive-by valuation, which can prove a cheaper alternative.
Exit fees
Some lenders may charge an exit fee when the loan is repaid, which can also add to the cost of a bridging mortgage. Typically, however, these types of loans will not have early repayment fees.
You should always consider that this type of mortgage is higher risk. Before you can successfully apply, you will need to demonstrate to a lender that you have a sufficient exit strategy in place.
It is often best to get expert advice from a bridging mortgage broker who can deal with lenders directly on your behalf.
Lastly, it is essential to shop around and compare the costs of other bridging mortgages to find the most cost-effective one.
Each lender has different fees and lending criteria, so it is advisable to consult several lenders and compare their prices.
For more help, read our full guide to bridging loan costs.
Bridging Mortgage Criteria
You must meet certain requirements and a list of criteria - often different depending on the lender you take the mortgage out with.
Lenders will consider your application based on several factors; here are some of them:
Credit history - Borrowers will be assessed based on their credit history and score. Typically, a good standing order is required to be eligible for a bridging mortgage.
Income and employment – You’ll likely need to demonstrate that you have a regular and stable source of income so that lenders can properly assess the suitability of a loan and judge how and if you can repay the loan within the term.
Property valuation - Lenders will need to know the value of a property against which you intend to take a loan, and the value of the property can impact a lender’s decision.
Equity in property - Most bridging mortgages are secured against a property, and a lender will evaluate whether there is enough equity to secure the loan amount you need.
Purpose - Whether the loan is intended for buying a new home or renovating an existing one before selling, the lender needs to know what the loan is for. They will need to assess the feasibility of any project before lending money.
Exit strategy - Since bridging loans are short-term loans, the borrower must provide a solid repayment plan. Typically, this comes through the sale of the property the loan is raised against, but it could also be in the form of additional assets or other properties.
Each lender assesses an application's risk and feasibility differently, but these are some of the main factors considered.
To ensure a successful application, you must have a robust exit plan and understand your loan's terms and conditions. Therefore, it's advisable to seek the advice of a qualified bridging mortgage broker to help you through the details of the application and deal with lenders.
How Much Can You Borrow With a Bridging Mortgage?
The affordability calculations for bridging mortgages aren't based on your income like standard mortgages are.
Instead, you can generally borrow as much money as you can prove you're able to repay through your exit strategy, typically up to about 80% of the loan to value.
For example, if the property you're buying with your bridging mortgage is worth £300k, you could borrow of your 80% LTV which would be £240k. So you'd need a secured asset or bridging deposit of 20%.
In some cases, you may be able to borrow up to 100% of your LTV, especially if you can secure your loan against additional assets (this could also get you a lower interest rate).
How to Get a Bridging Mortgage?
It is best to seek the help of a bridging mortgage expert to fully understand and view all your available options when making important financial decisions, such as taking out a bridging mortgage.
It is possible to go directly to lenders; however, for the inexperienced, we recommend the services of a broker who can help guide you through the entire process - from application to comparing rates and getting a bespoke deal for your own personal scenario.
Here at HiLo Finance, we can help you better understand your options, whether you're new to bridging mortgages or an experienced property developer.
Call us today on 0203 750 0305 to see how we can help, or book a consultation with us.
