What is a bridging loan and when is it used?

Amongst a wide range of financial products, lenders also offer lesser-known products for less standard situations. They are less common than standard residential mortgages or investment mortgages such as Buy-to-let and Holiday-let, but it is worth knowing they exist. One of them is the bridging loan. In this article, we explain what it is, when it is used and how it can be obtained.

Bridging loan

A bridging loan is a short-term loan secured on property, used when a person or company needs funds while waiting for longer-term financing or a sale. In the context of mortgages, bridging loans are typically used to buy a property before the previous one is sold. It is a financial bridge between one transaction and another – hence the name. Bridging loans are also used to buy property at property auctions, where the deadline for completing the purchase is short.

Bridging loans are short-term loans on which you usually make no capital repayments during the term. Depending on the lender and the loan, interest may be paid monthly or added to the loan and repaid at the end, together with the capital, in one sum. Bridging loans are short-term: in a 2026 lender survey, the most common average term reported was 12–15 months, and the term you need depends on how long your sale or refinance is likely to take.

Bridging loan interest is usually quoted as a monthly rate; in a 2026 lender survey, two-thirds of bridging lenders put the average rate over the previous 12 months at between 0.75% and 1% a month. Bridging loans are generally more expensive than standard residential mortgages, because the lender takes on more risk over a short period. The rate you are offered depends on the lender’s underwriting of the property and your circumstances. As well as interest, you may pay fees such as an arrangement fee, valuation and legal fees and, with some lenders, an exit fee, so compare the total cost rather than just the monthly rate.

A bridging loan used to buy a home must be secured on property. If you cannot repay the loan, the lender can take possession of the property used as security and sell it. Security is usually taken in one of three ways:

• security on the old house;

• security on the new house;

• security on both properties.

Some lenders take security over both properties, which may allow you to borrow more. Bridging lenders usually lend up to a maximum of around 75% of the value of the property used as security (the LTV), and the limit can be lower depending on the lender and on whether the loan is a first or second charge. A bridging loan to an individual that is secured on property where at least 40% of the land is used, or intended to be used, as a dwelling is generally regulated by the Financial Conduct Authority, unless an exclusion applies (for example, certain business or investment property loans); bridging loans to companies, and other loans outside the regulated definition, do not carry the same FCA protections.

A bridging loan depends on your plan to repay it. If the sale of your previous property or your new mortgage takes longer than planned, interest keeps building up, and if the loan is not repaid the lender can take possession of the property. Before you borrow, check what happens if the term ends before your sale or refinance is complete.

How does a bridging loan work?

To illustrate how a bridging loan works, let us use a simple example. It will refer to the most common situation in which such financing may be needed, i.e. the purchase of a new property before the sale of the previous one. In any other case, a bridging loan will work in a very similar way.

Let us assume that Mr Janusz wants to sell his house for £500,000 and buy another one for £600,000, but he does not have enough cash to complete the purchase. He therefore decides to take out a bridging loan, which lets him complete the purchase before his old house is sold. While the old property is listed for sale, Mr Janusz moves into his new home, paying the interest monthly (with some loans, the interest is instead added to the loan). When his old house sells, he will repay the bridging loan in full with the proceeds from the transaction. He may be able to finance the remaining £100,000 with a residential mortgage, subject to the lender’s valuation, affordability assessment and eligibility criteria. He should establish a credible repayment plan before committing to the bridging loan, including the effect of fees and any existing mortgage.

Do I need to prepare another deposit?

As with other mortgages, you cannot usually borrow the full value of the property, so you need a deposit or other security. Because bridging lenders usually lend no more than around 75% of the value of the property used as security, the rest has to come from your own money or from equity in other property offered as additional security, such as the home you are selling. If you have a lot of equity in your current home, it can help secure the loan, so you may not need extra cash. If your current mortgage is large, there is less equity to use, which limits how much you can borrow. Additional security does not remove transaction costs: allow for interest, lender and legal fees, taxes and any cash contribution required by the lender.

Does the ERC apply to bridging loans?

Another point that may seem confusing is the Early Repayment Charge (ERC), a fee for repaying a loan early, mainly applied to longer-term mortgages. Bridging loans do not always carry an early repayment charge like a standard mortgage, but some lenders set a minimum term, for example charging up to three months’ interest if you repay within the first three months, and some charge exit or redemption fees. Check the loan offer for these charges, especially if you expect to repay within a few weeks.

If you are planning to take out a bridging mortgage and expect to sell your current property within a very short period of time, be sure to discuss this detail with your Extend Finance adviser.

How is creditworthiness assessed for bridging loans?

Lenders assess a bridging loan differently from the classic affordability assessment used for residential mortgages, with greater emphasis on the so-called exit strategy, i.e. how you will repay the loan.

A common exit strategy is selling your old house. If you plan to repay by selling your existing home, the lender may require an independent valuation of that property to check that the sale is likely to cover the loan.

An exit strategy may also involve repaying the bridging loan with another mortgage (remortgage), for example if you do not want to sell your previous property. If you plan to refinance onto a standard mortgage instead, the lender will want to be reasonably satisfied that a mainstream lender is likely to lend to you, for example through an agreement in principle.

This does not mean that your overall financial situation and credit score are irrelevant. Your wider finances are still assessed. For a regulated bridging loan, the lender must check that you can afford any payments, unless the interest is rolled up until the end of the loan; in that case the focus is on whether you have a credible way to repay the loan.

In what situations is a bridging loan useful?

The situation described above is not the only one in which a bridging loan can be used. It can also help in other cases where a transaction needs to be completed before longer-term finance is in place, for example:

• If you want to buy a property that needs renovation – if the property is not currently mortgageable, for example because it has no working kitchen or bathroom, standard mortgage lenders may not lend on it. A bridging loan can fund the purchase and, depending on the lender, the works. Once the work is finished, you may be able to repay the bridging loan with a standard mortgage, based on a new valuation of the renovated property.

• Buying a property at auction – auction purchases usually have to complete within a short, fixed deadline, which may be too soon to arrange a standard mortgage. A bridging loan can be used to complete in time, provided the lender can complete before the deadline.

Summary

A bridging loan can help solve specific timing problems. A bridging loan is a short-term loan secured on property. You usually make no capital repayments during the term: interest is either paid monthly or added to the loan, and the balance is repaid in one sum at the end, typically from a sale or a new mortgage. It can help when timing or the condition of a property means standard mortgage finance is not yet available, but it generally costs more than a standard mortgage and depends on a reliable exit strategy.