Bridging Loans
Bridge a financial gap to secure an investment property, complete refurbishments and more.
What are Bridging Loans?
Bridging loans are short-term loans secured against property, designed to provide fast access to capital when timing is critical. They’re typically used to ‘bridge the gap’ between a current financial need and a future event, such as selling a property, refinancing onto a longer-term mortgage, or securing planning permission.
Unlike traditional mortgages, bridging loans are not primarily assessed on income or monthly affordability. Instead, they’re underwritten based on the value of the security property and the strength of the borrower’s exit strategy. Interest is usually retained or rolled into the loan, meaning there are no monthly payments during the term.
Bridging finance is often used in situations where speed and flexibility are essential. This includes purchasing property at auction, funding refurbishment works, releasing capital tied up in existing assets, or navigating complex transactions like title transfers or planning gain. In many cases, terms can be issued within hours, and completion can follow in just a few days.
Loan terms usually range from 3 to 12 months, with most lenders offering up to 75% of the property’s open market value. In some cases, borrowers can secure higher leverage by offering additional properties as security.
Bridging loans can be defined as open or closed. Many bridging loans are on an open basis, where the borrower sets out a proposed exit plan to repay their loan but there is no definite date. An open bridge loan can be repaid whenever funds become available. However, there will be a clear cut-off point by which the loan has to be repaid, for example within 12 months.
Regulated vs Unregulated Bridging Loans.
A bridging loan is only regulated if the property is intended to be used for your own family or has been any time. This includes any mixed-use property where 40% or more of the land is used as a dwelling.
Any bridging loans that are intended to be used for business or investment properties are unregulated and come under the umbrella of commercial mortgages.
What Can Bridging Loans Be Used For?
Property Purchase.
The most common use for bridging loans is providing speed and flexibility when purchasing a new property. Whether you’re buying a new home before your current one sells, securing an investment opportunity, or need to move quickly to avoid missing out, a bridging loan can provide short-term funding to complete the purchase. This allows you to act decisively in situations where traditional mortgages might be too slow, giving you the freedom to proceed with confidence while arranging long-term finance or selling another asset. There are a couple alternative uses that come under this bracket.
A representative example:
A client approached iBrokr after the sale of their existing home fell through, leaving them unable to complete on their onward purchase. The new property was secured for £525,000 and the seller was unwilling to delay completion, putting the deal at risk.
iBrokr arranged a bridging loan secured against the new property at gross 75% loan-to-value, giving the client the funds needed to complete on time despite their own sale falling through. Once their original property was successfully sold a few weeks later, the proceeds were used to repay the bridging loan in full. This allowed the client to proceed with their move as planned, without being held back by delays in their property chain.
Auction Purchase
Bridging loans are a popular solution for buying property at auction, where exchange and completion are often required within tight timeframes, typically 28 days. Traditional mortgages are rarely quick enough for these scenarios, so many investors and buyers rely on bridging finance to secure the funds they need, fast. Our panel of lenders is highly experienced in handling auction purchases and can complete deals in as little as seven days, helping you meet deadlines with confidence.
Representative Example:
A client approached iBrokr after successfully winning a residential property at auction for £310,000. With the auction terms requiring completion within 28 days, there wasn’t enough time to arrange a traditional mortgage.
iBrokr secured a bridging loan at 75% loan-to-value, with the lender ready to draw funds after 11 days, allowing the client to complete the purchase well within the deadline. Once the property was legally acquired, the client filled the property with tenants and refinanced onto a long-term buy-to-let mortgage, repaying the bridging loan in full.
Buying Below Market Value
Property investors occasionally secure opportunities to purchase real estate below open market value. Common examples include auction purchases, probate sales, off-market deals, distressed sales, and developer stock clearances. Many bridging lenders will fund up to 75% of the open market value, which can often allow investors to raise up to 100% of the purchase price. This approach not only reduces the amount of capital required upfront but also frees up funds for future opportunities, helping investors scale faster and manage risk more effectively.
Consider this example:
iBrokr was approached by a client who had secured a property at auction for £200,000, with plans for a medium refurbishment budgeted at £25,000. One of iBrokr’s lenders arranged a valuation, which confirmed an open market value of £250,000 in its current condition.
The lender offered funding at 77% of the open market value, providing a net loan of £193,000: equivalent to 96.5% of the purchase price. This allowed the client to contribute only a small amount toward both the acquisition and the planned works. The project is currently underway, with an anticipated resale value of £385,000 upon completion.
Refurbishment
Bridging finance is often used by property developers and investors to fund refurbishment projects, whether for flipping properties or enhancing rental value. When a property requires significant repairs or upgrades, a bridging loan can cover the cost of renovations, allowing the investor to complete the work quickly. This approach helps unlock the property’s full market value upon completion, enabling a profitable exit or refinance once the improvements are made.
Light to Medium Refurbishment
Light refurbishment is where no planning permission or building regulations are required. Light refurbishment typically involves cosmetic updates and minor repairs, such as painting, decorating, replacing fixtures, or upgrading kitchens and bathrooms.
Medium refurbishment refers to a renovation that goes beyond basic cosmetic improvements and minor repairs but doesn’t involve major structural alterations like extensions or loft conversions.
Consider this example:
iBrokr was approached by a client purchasing a property at auction for £200,000. The client planned a medium refurbishment, budgeting £25,000 for works including full redecoration, a new kitchen and bathroom, filling in a doorway, and knocking through a wall to convert the property from two flats into a single dwelling.
One of iBrokr’s lenders provided funding at 77% of the proven open market value of £250,000. This resulted in a net loan of £193,000, meaning the client only needed to contribute a small amount toward both the purchase and the refurbishment. The project is ongoing, with an anticipated resale value of £300,000 upon completion.
Heavy Refurbishment
Heavy refurbishments are more complex, involving structural changes to the property that require planning permission or building regulations approval. The returns on a successful heavy refurbishment project, however, can justify the effort. Typical examples of heavy refurbishment include:
- converting a property from commercial to residential use, such as barn conversions.
- creating multiple units from a single building;
- or merging multiple units into a single building.
Consider this example:
iBrokr were approached by a client who had purchased a country property with an adjoining barn off-market for £290,000. The barn alone was valued at £490,000 in its current condition. The client had already completed the strip-out and insulation and was seeking a bridging loan to fund the next phase of works, including the installation of structural steel, a concrete slab with underfloor heating, and completion of an extension where foundations were already in place
The contractor forecasted practical completion for June 2025, with the finished property expected to achieve a GDV of £750,000. One of iBrokr’s lenders agreed to fully fund the £250,000 construction costs, with repayment to be made from the sale of the property upon completion.
Planning Gain
Bridging finance is a useful tool for investors and developers looking to capitalise on planning gain opportunities. Whether you’re purchasing land or property with the intention of securing planning permission and developing yourself or looking to refinance post consent to release uplifted value, a bridging loan can provide the flexibility and speed required at each stage.
Development Exit
Bridging finance is commonly used as an exit strategy from development finance. Once a project reaches practical completion, developers are often under pressure from their existing lender to sell units and repay the facility within a set timeframe. A bridging loan can be used to refinance the development loan, often at a lower interest rate, providing breathing room to achieve better sale prices without rushing the sales process. In many cases, capital can also be released from each unit sale, giving developers the flexibility to reinvest or fund future projects.
Consider this example:
A property developer is managing a scheme of 100 flats, where they have reached practical completion and 35 units have already been sold. The remaining 65 are still on the market and are taking longer than expected to sell. The repayment date with the incumbent lender is nearing and the lenders representatives are becoming restless, threatening eyewatering extension charges.
In this case, a bridging loan can be used to refinance the existing development loan, releasing cash from the 35 sold units. This provides the developer with more time to sell the remaining 65 units, avoiding costly extension charges from the incumbent lender. With typically lower interest rates, bridging finance offers the flexibility to continue sales without pressure, giving the developer extra time to secure better sale prices for the unsold units.
Lease Extension
Buying short-lease properties can be a useful way of investors creating value; a lease extension increases marketability and consequently sale value. Recent changes in legislation mean buyers are no longer required to own a property for two years before applying for a lease extension, opening the door to quicker opportunities. Bridging finance can be used to fund the initial purchase and provide the flexibility to complete the lease extension, before refinancing or selling at the property’s uplifted value.
Consider this example:
A lender from our panel recently completed a loan facility that helped an investor:
- Purchase a flat in London for £1.25 million with 30 years remaining on the lease.
- Spend £200,000 extending the lease
- Spend a further £250,000 refurbishing the flat
- Increasing its value to £2.7 million.
- The lender funded 75% LTV towards the purchase price and 100% of lease extension and refurbishment costs.
Title Transfer
Bridging loans can be used to refinance an existing mortgage and create the time and flexibility needed to complete a title transfer. This is particularly useful when transferring ownership from personal names to a company, a common step before refinancing onto a long-term buy-to-let mortgage. Bridging finance ensures the transaction isn’t rushed, allowing the title to be updated properly before securing a new, permanent funding solution.
Consider this example:
iBrokr was approached by a property investor looking to refinance an existing buy-to-let mortgage and transfer the title of the property into their company name. The client’s goal was to exit onto a new long-term buy-to-let strategy once the transfer was complete. iBrokr secured bridging finance to cover the full balance of the existing mortgage, giving the client up to 12 months to complete the title transfer and arrange a long-term refinance at their own pace.
Capital Raise
Bridging finance is a flexible way for property developers to release equity from completed or part-complete projects. Whether raising capital for a new site acquisition, funding early-stage planning costs, or covering build-phase cash flow gaps, a bridging loan allows developers to access funds quickly without waiting for a sale or long-term refinance. This approach can help maintain momentum between projects and free up capital to secure the next opportunity while the current development exits at the right time.
Consider this example:
A property developer with a portfolio of rented commercial units may want to release equity for a new land acquisition. Rather than selling one of the properties or waiting for a long-term refinance, the developer can use bridging finance to raise funds against an unencumbered asset or assets within their portfolio. This allows them to secure the new site quickly, without disrupting their ongoing rental income. They can later repay the bridging loan through planned refinancing or asset sale.
A working example:
iBrokr had a client who wanted a bridging loan to help when purchasing a property at auction for £200,000. The client planned a medium refurbishment, budgeting £25,000 for works including full redecoration, a new kitchen and bathroom, filling in a doorway, and knocking through a wall to convert the property from two flats into a single dwelling.
One of iBrokr’s lenders provided terms at 77% of the proven open market value of £250,000. This resulted in a net loan of £193,000, meaning the client only needed to contribute a small amount toward both the purchase and the refurbishment. The project is ongoing, with an anticipated resale value of £300,000 upon completion, meaning the borrower would make £75,000 at this sale value, after loan and refurb costs.
How Much Do Bridging Loans Cost?
Bridging loan have various associated costs that can be broken up into interest and fees.
Interest:
Interest is presented as a monthly figure, usually equating to somewhere between 0.5% and 2%, dependant on various factors affecting the level of risk the lender is taking on. Interest can be serviced in several ways.
Serviced interest:
You pay the interest each month as it accrues. For example, if you borrow £100,000 at 1% per month, you’ll pay £1,000 every month in interest. The loan balance stays the same throughout, and you repay just the original amount at the end. This method suits borrowers with steady cash flow during the loan term.
Rolled-up interest:
Means you don’t make any monthly payments. Instead, interest is added to your loan each month and paid in full at the end. For example, if you borrow £100,000 for 6 months at 1% per month, you’ll owe £106,000 when repaying the loan. This method is useful when you don’t have cash available until the property is sold or refinanced.
Retained interest:
The lender calculates the interest for the agreed term upfront and deducts it from the loan. If you borrow £100,000 at 1% per month for 6 months, the lender withholds £6,000 in interest and gives you £94,000. At the end of the loan, you repay the full £100,000. This avoids monthly payments but gives you less money up front.
Most commonly, interest is retained and paid at the end of the loan term. This is mainly due to borrower preference. Interest can be fixed or floating over a benchmark rate such as the Bank of England base rate or SONIA. SONIA represents the average interest rate at which banks lend to each other overnight in British pounds, while the base rate is the interest rate the Bank of England uses to influence broader economic conditions. Lender’s preference between the two can vary.
Default interest:
Default interest is a higher rate charged when you don’t repay your bridging loan on time. As soon as the agreed loan term ends and the balance isn’t cleared, the lender may apply this penalty rate. For example, if your original interest was 1% per month, the default rate could jump to 2% or even 3% per month. This reflects the increased risk to the lender and can cause your costs to rise quickly. Some lenders are much more flexible with overran loans; It’s always best to let the lender know early if you’re at risk of missing the repayment deadline, they may be willing to discuss options before applying default rates. However, it is always imperative that you have a well ironed repayment strategy to avoid any overrun loans and ultimately expensive default charges.
Extension Interest:
Similarly, lenders may grant you additional time to repay the facility, by way of extending the term. Extension interest is usually a bit higher than your original rate, but not as severe as default interest. For instance, if your loan was at 1% monthly, the extension rate might be 1.25% or 1.5% per month. This gives you a formal grace period and helps you avoid penalties, but it still adds to your costs. To avoid slipping into default, it’s smart to negotiate an extension before your loan term ends, or ideally exit the loan as planned.
Fees:
There are also various fees associated with bridging loans.
Arrangement Fee:
Lenders typically charge an arrangement fee for setting up the loan, usually between 1% and 3% of the net loan amount. At present, it’s common for this fee to be set at 2% of the net loan amount.
Exit Fee:
Lenders may also charge an exit fee, which is charged at the end of the loan term. Like the arrangement fee, it’s usually calculated as a percentage of the net loan amount. While less common, exit fees are more likely to be charged when the lender is taking on higher risk.
Redemption Fee:
A redemption fee may be charged when the loan is repaid, typically to cover the administrative costs of closing the account. This fee is usually fixed rather than a percentage of the loan and is less significant than other charges. Not all lenders apply a redemption fee, but it’s worth checking the loan terms to avoid surprises at repayment.
It’s more common for lenders to charge an early redemption fee, which applies if you repay the loan well before the end of the agreed term. This fee compensates the lender for the lost interest they expected to earn. However, this is something iBrokr typically tries to avoid for its clients, aiming to keep exit costs as low as possible.
Valuation Fee:
The lender will carry out a valuation of the main property and any additional security properties before the loan is drawn down. This ensures they have verified the value of the assets they are lending against. Valuation costs can vary depending on the type and location of the property but typically range from £500 to £1,000 per property.
There are multiple types of valuation a lender might use, including:
Automated Valuation Model (AVM):
An AVM uses an automated system to calculate a property’s value based on a wide range of data sources such as recent sale prices, property tax records, and market trends. The process is fully automated and doesn’t involve any human intervention or physical inspection. AVMs are fast, cost-effective, and often used by lenders for quick valuations when time is crucial. However, AVMs can be less accurate for unique or unconventional properties, as they rely purely on available data and algorithms.
Desktop Valuation:
A desktop valuation is a type of property assessment that involves a human surveyor or valuer who remotely evaluates a property using available information, such as online property data and comparable sales, without conducting a physical inspection. It’s quick and low cost, typically used for lower risk loans or when time is critical. Lenders may accept this for standard residential properties with good comparable evidence.
Red Book Valuation:
A Red Book valuation refers to a property assessment that follows the standards set by the Royal Institution of Chartered Surveyors (RICS) in the UK. This type of valuation involves a thorough inspection of the property, both inside and out, and is usually required for more complex or high-value properties. The Red Book guidelines ensure the valuation is conducted with the utmost accuracy, and consistency. It’s considered the most comprehensive and reliable form of valuation, commonly used for significant lending decisions.
Admin Fee:
Lenders might apply an administration fee upon drawdown of the loan, which is commonly in the region of £500.
Solicitor Fee:
You will need to instruct a solicitor to assist with reviewing and drafting loan agreements, as well as purchase agreements if required. Legal fees can vary depending on the complexity of the transaction but will typically be around £1,500.
Procurement Fee:
iBrokr is paid a procurement fee by the lender, which is added to the net loan amount and settled through the loan. Procurement fees typically range between 1% and 2% of the net loan amount. However, iBrokr remains flexible with fees to ensure each project runs smoothly and remains financially viable for the borrower.
Broker Fee:
In addition to the procurement fee, brokers may have the option to add a separate broker fee to the loan, payable by the borrower. However, iBrokr does not charge a broker fee, as we believe fees in the market are often excessive. We operate on a customer-centric model, focused on ensuring that every project remains financially viable and profitable for our clients.
How do I get a Bridging Loan?
Traditionally you can access bridging loans via a mortgage broker or direct to lender. If you have extensive experience in property development, direct access might be suitable. However, it is suggested that a broker is used to provide access to the best lenders, comparison of varying lender terms and guidance through the process. iBrokr acts as a commercial mortgage broker to do just this.
iBrokr’s Impact:
Getting started is simple. iBrokr gives borrowers the flexibility to start and complete their loan application at their own pace, without endless back-and-forth with brokers. Our online application tool allows you to submit all key project details and supporting documents in one place, meaning everything needed to secure funding is ready from day one. Our specialist brokers remain available throughout, providing expert support and market knowledge whenever you need it.
Once your application is submitted, one of our experienced brokers will review the details to assess project feasibility. With access to over 80 lenders, from high-street banks to private and specialist development finance providers, we match your project with only the most suitable lenders.
Using iBrokr’s holistic application process, lenders can issue real-time decision-in-principle terms that are accurate and reliable, not vague estimates that change later. Unlike the traditional model, where offers often shift after key information is uncovered, iBrokr ensures the first terms you see are the ones you can trust.
After selecting your preferred lender, we guide you through their due diligence process, keeping solicitors and valuers on track to complete swiftly.
Once your finance is approved, funds are typically released in stages (drawdowns) aligned to your development milestones. Throughout your project, we remain on hand to help manage additional funding needs quickly and efficiently.
Bridging Loan Requirements.
To secure a bridging loan, lenders require you to submit some financial and personal information to get a better idea of who they are lending to. There are some general requirements that most lenders stick to, and information required includes. All the below details and documentation can be uploaded and stored on iBrokr. We break away from the traditional model, where borrowers and lenders would get lost in endless email chains.
Credit Worthiness/Financial Strength
Lenders will usually ask for proof of income and bank statements from the past 3 months. This is to ensure that you have the finances behind you to satisfy the costs associated with a bridging loan.
Additionally, lenders will evaluate your credit score and will need to be made aware of any adverse credit history. Although many lenders will not lend to those with adverse history, there are multiple lenders on the market that will take a holistic approach to loan underwriting and will allow borrowing if other aspects of the loan proposal. Are watertight.
Borrower History
As part of a bridging loan application, lenders will carry out thorough due diligence on the borrower to assess risk. This includes a detailed review of your financial background, credit history, and any relevant experience with property projects. Transparency is key and any material information should be disclosed early to avoid delays. Traditionally this information is collated by a broker over email, which can prove to be quite a lengthy process. iBrokr provides a modern approach whereby you can upload vital information easily and even store it for future applications.
Key areas lenders will expect to review include:
Credit Profile:
Any adverse credit, such as missed payments, defaults, or bankruptcies, should be declared upfront. Minor issues may not prevent approval, but they will affect terms. Some lenders are more flexible than others.
CCJs:
County Court Judgments (CCJs). A County Court Judgment (CCJ) is a legal ruling issued in England, Wales, or Northern Ireland when someone fails to repay money they owe. Any active or historic CCJs must be disclosed during the application process. Lenders will assess when the CCJ occurred, its value, and whether it has been satisfied. A single, resolved CCJ is often acceptable, but multiple or recent judgments may limit lender options.
Some lenders are still open to adverse credit cases if there’s a strong exit strategy and full transparency.
IVAs:
An Individual Voluntary Arrangement (IVA) is a formal agreement between a person and their creditors to repay debts over time, usually across five or six years. It’s legally binding and must be set up by a licensed insolvency practitioner. Once in place, creditors can’t take further legal action, and interest is usually frozen, but having an IVA will significantly affect a person’s credit score and borrowing ability. It stays on the credit file for six years from the start date, even if paid off early.
Existing Borrowing:
A breakdown of your current debts, including mortgages, bridging loans, or other secured/unsecured borrowing, will help lenders understand your financial position.
- Past Projects: If you’re applying for finance to refurbish or develop property, a track record of similar projects, including type, scale, and outcomes will strengthen your case. Lenders may ask for photos, timelines, or evidence of profits from previous schemes.
- Previous Loan History: If you’ve previously used bridging loans, lenders may ask how those were repaid, via refinance or sale, and whether they were repaid on time. A strong repayment history can help secure better terms.
- Corporate Background (if applicable): If applying through a company or SPV, lenders may request information on the company’s structure, shareholders, and trading history.
Lenders aren’t necessarily looking for a “perfect” borrower, but they do want clarity and a realistic exit strategy. Early disclosure of any issues allows your broker to position the application correctly and match you with the most suitable lender.
Identification.
You will be asked to provide government identification (i.e. password or driving license) to confirm that you are who you say you are. This can also confirm that you are either a UK citizen or from a country that lenders are happy to lend to. This can vary but is often all those free of conflict or corruption.
Project Details.
If your bridging loan is intended to fund refurbishment or development, or if you plan to undertake any works during the term of the loan, even with your own funds, lenders will require a detailed Schedule of Works. This should outline all planned activity, broken down by phase, with clear timeframes (typically set out on a weekly or monthly basis). The more detailed and realistic your schedule, the smoother the approval process will be.
For medium to heavy refurbishments, this schedule must also be supported by the appropriate planning consents. Depending on the scope of the works, this could mean evidence of permitted development rights or full planning permission. Lenders will need to see confirmation that the proposed improvements are legally permitted before funds can be released.
Permitted development rights
Are automatic grants of planning permission that allow certain building works and changes of use to be carried out on a property without having to make a full planning application. These rights cover householder improvements but will also encompass some development schemes such as the conversion of offices to residential use. They include multiple restrictions so funders will require specific evidence that such schemes are PDR-compliant in a funding application or through the legal due diligence process.
Full planning permission
Provides consent for a development scheme based on a detailed design. This often includes pre-conditions attached to the approval that must be satisfied for the approval to be valid and formally discharged in writing by the local planning authority (LPA).
Outline planning permission
Does not include specifics for the design but provides a ‘permission in principle’. It does not provide consent to commence works but is rather used by developers to explore whether a development would be viable. A further application for ‘reserved matters’, which would include detailed matters of design, construction, appearance, landscaping and access, would need to be submitted for approval prior to works commencing. If these matters significantly deviate from the original outline permission application, a new detailed application may be requested
iBrokr allows schedule of works, planning permissions and any other supporting documents to be submitted seamlessly as part of an application.
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