A Short-Term Solution for Property Investors
When speed matters in property transactions, bridging finance can be the answer.
What is a Bridging Loan?
A bridging loan is a short-term finance option that helps property investors and homeowners move quickly on time-sensitive transactions. Unlike traditional mortgages, which take weeks to secure, bridging loans can be arranged in days, making them ideal for those looking to buy at auction, break property chains, or renovate before refinancing.
This type of loan is secured against property, meaning that the borrower must provide collateral. While bridging finance offers speed and flexibility, it also comes with higher interest rates compared to standard mortgages, making it crucial to have a clear exit strategy in place.
Types of Bridging Loans
Bridging loans fall into two main categories:
- First-Charge Bridging Loans – These are used when there is no existing mortgage on the property, making the bridging lender the primary party to be repaid.
- Second-Charge Bridging Loans – These apply when there is an existing mortgage on the property, requiring permission from the primary lender. Because they involve more risk for lenders, they typically come with higher interest rates
When to Use a Bridging Loan
Bridging loans are commonly used in scenarios where conventional financing might take too long or simply isn’t available. Some key examples include:
- Auction purchases – Investors often need to pay within 28 days, making bridging finance a practical choice.
- Property chain breaks – If a buyer’s sale falls through, a bridging loan can keep the purchase on track.
- Renovation projects – Some properties aren’t eligible for traditional mortgages until improvements are made. Bridging loans help fund refurbishments before refinancing.
Fixed vs. Variable Interest Rates
Bridging loans can come with fixed or variable interest rates. Fixed rates provide stability, ensuring consistent repayments, while variable rates fluctuate with the market, potentially offering savings but also carrying risks.
Open vs. Closed Bridging Loans
- Open Bridging Loans – Do not have a fixed repayment date but are usually expected to be repaid within 12 months.
- Closed Bridging Loans – Have a set repayment date, often aligned with an expected property sale or refinancing deal
Would a bridging loan be right for you?
While bridging finance can be a valuable tool, it’s essential to weigh the risks:
✅ Have a clear repayment plan – Whether it’s selling the property or refinancing, a defined exit strategy is crucial.
✅ Understand the costs – Bridging loans come with higher interest rates and additional fees, such as arrangement and valuation charges.
✅ Assess the risk – Since bridging loans are secured against property, failure to repay could result in repossession
For property investors needing fast, flexible funding, bridging loans can be a powerful solution. However, they should be used wisely and with a clear repayment plan in mind.
At Cotterell & Cotterell Commercial Finance, we help homeowners, developers and businesses secure tailored funding solutions for commercial property and development projects. If you’re wondering is a bridging loan is the right for you, get in touch with our team today and we#ll take you through your options.
