Bridging loans: the rebranded product for property buyers

Bridging loans have long been viewed as specialist products used by niche borrowers and those in distress but the finance sector has noted a new trend. The image of bridging loans has undergone somewhat of a rebrand and their appeal has become more mainstream. In fact, the latest Bridging Trends data revealed gross bridging loan lending jumped from £196.2million in Q1 of 2024 to £201.8 million in Q2.   

The report went on to detail how bridging loans are being used. The most common reason for a bridging loan to be taken out in Q2 of 2024 was to prevent a chain break (23% of loans). This is when a buyer uses a bridging loan to secure their next property while they wait for a new buyer, especially if everyone’s exchange and completion dates fall out of sync.  

The second most popular reason to take out a bridging loan was to make an investment purchase (18%). Bridging loans are a common choice among landlords who want to retain cash flow or if they want to buy an investment that needs improvements before it can be rented out.  

The data also showed demand for auction finance jumped to an all-time high. Bridging loans are favoured by purchasers who want to buy at an auction, as the buyer will need their deposit in cash when the gavel falls and have finance to complete quickly, usually within 28 days. This explains why 14% of bridging loans in 2024’s Q2 were to facilitate an auction bid.   

Another reason bridging loans were used was to undertake a refurbishment (11%). This is popular with property ‘flippers’ who need upfront cash to make improvements to increase the value of a property before they sell it on for a profit. They then use the proceeds from the sale to quickly pay off the bridging loan.   

6 things to consider before taking out a bridging loan  

1. The repayment time frame will be set by the lender. Potentially, it may be as long as 24 months but it could possibly be as short as one week, depending on the circumstances.  

2. A bridging loan is ‘secured’ finance, so it will be secured against a property you own or another substantial asset. If you fail to repay the loan, your asset could be repossessed.    

3. Bridging loan interest rates may look favourable on paper but they are calculated daily or monthly, making them more expensive than conventional loans. Always do the maths and work out what the annual rate of interest is.  

4. The self-employed, retirees and even those with adverse credit can apply for a bridging loan but they may have to pay a higher rate of interest or accept a shorter repayment term.

5. The longer the repayment term (often an open bridge loan), the more interest will accumulate. A closed bridge loan will need repaying quicker but the interest rate attached will usually be lower.  

6. You will need a valid ‘exit plan’ that demonstrates to the lender how you will pay off the bridging loan. Borrowers will need to consider what will happen if they fail to sell their property and their equity/money stays tied up in bricks and mortar.  

Our advice is to speak with a financial adviser before taking out a bridging loan. Often, an independent mortgage lender can help in time-critical situations, so speak to a professional first. If you’d like any finance recommendations, please contact us.