What is a bridging loan?

What is a bridging loan?

A bridging loan is deal-led and exit-focused, not income-led, which is the fundamental difference between bridging finance and a mortgage. A mortgage assesses long-term affordability from income, expenditure, and stress testing over many years. A bridging lender instead assesses how the loan will be repaid: the value of the security property, the loan-to-value (LTV), and whether the exit strategy is realistic within the loan term.

Three features define a bridging loan:

• Short term. Bridging loans typically run from a few months up to 24 months, with a maximum of around 36 months. Overall cost is driven more by how long the loan is outstanding than by the headline rate.
• Interest priced monthly. Interest is quoted per month rather than per year, and sits higher than mortgage rates to reflect the short-term, higher-risk nature of the lending.
• Secured on property or land. Security is taken over residential property, buy-to-let and HMOs, commercial and semi-commercial buildings, mixed-use property, development sites, or land with or without planning. Additional security can sometimes be offered to increase leverage or improve terms.

Because the lending is asset-led, adverse credit, complex income, or unconventional circumstances can often be accommodated where the fundamentals of the deal are strong. Some products are available on a non-status basis, meaning borrower income and experience are not the key drivers of approval.

Who can borrow. Bridging loans are available to individuals, Special Purpose Vehicles and limited companies, Limited Liability Partnerships (LLPs), trading companies, charities, and onshore and offshore trusts.