How Does a Bridging Loan Work? Step by Step, With Numbers

Bridging loans are usually described by three features: whether there is a fixed repayment date, where the lender ranks in the security, and whether the loan is regulated. The type of bridging loan you take affects the rate, the loan to value (LTV) and how much evidence the lender wants about your exit.

Closed bridging loans have a fixed repayment date because the exit is already contracted, for example where contracts have exchanged on a sale. Open bridging loans have no fixed date, only a maximum term, usually up to 12 months and sometimes longer. Most investor and developer bridging finance is open, so lenders look closely at the evidence behind the planned sale or refinance. Because closed bridging loans carry less exit risk, they can be priced a little keener than open bridging loans.

A first charge bridging loan is the main legal charge on the property, so the bridging lender is repaid first. A second charge bridging loan sits behind an existing mortgage and usually needs the first lender’s consent; it costs more because the second lender ranks behind. Our guide to second charge bridging loans explains the consent process.

Unregulated bridging loans are secured on investment, commercial or development property and taken for business purposes. Regulated bridging loans are secured on a home the borrower or their family lives in. See unregulated bridging loans and regulated bridging loans for where the line falls.

A commercial bridging loan is secured on offices, retail, industrial or mixed-use property, typically at a lower LTV than residential. Development exit bridging replaces a development loan once construction is complete, giving time to sell units at full value; see development exit finance. Auction and refurbishment bridging loans work in a similar way, with the plan and the exit tailored to the project.

Bridging lenders size a loan primarily against the value of the property, expressed as LTV. For standard residential investment property, the maximum you can borrow is typically 70% to 75% of the market value. For a commercial bridging loan it is often 60% to 70%, and for land without planning it can be 50% or lower. Where more than one property is offered as security, the LTV is measured across the combined value, which can let you borrow more.

Crucially, most lenders apply the LTV cap to the gross loan: the total debt, including the arrangement fee and any interest that is retained or rolled up. That is why two bridging lenders offering "75% LTV" can put very different amounts of cash in your hands on completion day. What you actually receive is the net advance.

Lenders also check the purchase price. On an acquisition, the bridging loan is usually limited to the lower of the valuation and the price paid, unless the lender offers below-market-value lending, covered in our guide to below market value bridging loans. Where refurbishment works are funded, some lenders lend against the value after works, released in stages, which is closer to refurbishment finance. Loan sizes typically start from around £50,000, and larger bridging finance runs into many millions for commercial and development property.

Bridging loan interest is charged monthly, typically at an interest rate of 0.55% to 1.5% per month, depending on LTV, property type, the strength of the exit and your experience. At the time of writing (September 2026), the Bank of England Bank Rate is 3.75%, and many bridging lenders set pricing with reference to it or to their own cost of funds. There are three ways to pay the interest, and the choice changes both the net advance and your cash flow during the term.

The lender calculates interest for the full term and deducts it from the loan at the start. You make no monthly payments, and the gross loan is repaid at the end. If you repay early, many lenders refund the unused months, usually subject to a minimum interest period.

Interest is added to the balance each month, often compounding, and paid at the end with the loan. You make no monthly payments and receive more cash on day one than with retained interest, but the balance grows.

You pay interest monthly, like an interest-only mortgage. You receive the most cash on day one, but you need income or reserves to meet the payments, and lenders will check you can. Most investor and developer bridging loans use retained or rolled interest because the property is often producing no income during the term; some lenders offer a hybrid.

The bridging loan cost is made up of interest plus fees: an arrangement fee of around 1% to 2% of the gross loan, a valuation fee paid up front, your own and the lender’s legal fees, any exit fee (many lenders charge none) and any broker fee agreed in writing. For illustration, consider an investor buying a vacant, unmortgageable house for £400,000 to refurbish and refinance onto a buy-to-let mortgage. The lender values it at £400,000, offers a 12-month term at 0.8% per month, lends up to 70% gross LTV (£280,000) and charges a 2% arrangement fee, with no exit fee. The figures below are illustrative, not a quote.

Retained. Monthly interest is £280,000 × 0.8% = £2,240. Over 12 months that is £26,880, deducted up front. The arrangement fee is £280,000 × 2% = £5,600. Net advance: £280,000 − £26,880 − £5,600 = £247,520. The investor must fund the other £152,480 of the price, plus stamp duty, legal fees and the refurbishment, from their own resources.

Rolled. Here the lender agrees a day-one advance of £250,000 and adds the 2% fee (£5,000) to the loan, so the opening balance is £255,000. At 0.8% per month compounding, the balance after 12 months is £255,000 × 1.008¹² = £280,586, which is 70.1% of the £400,000 value and within the lender's limit at the end of the term. Interest over the year is £25,586.

Serviced. The whole £280,000 is available, less the £5,600 fee, giving £274,400 on day one. The investor pays £2,240 every month, £26,880 over the year, and repays £280,000 at the end. This maximises day-one cash but only works if the investor has the income to meet the payments on an empty property.

How much would a smaller loan cost? At 0.75% per month, a £200,000 bridging loan costs £1,500 a month in interest: £9,000 over 6 months or £18,000 over 12, plus a 2% arrangement fee of £4,000 and valuation and legal fees. Our guide to bridging loan costs breaks down every fee, UK bridging loan rates shows current pricing bands, and our bridging loan calculator lets you model your own scenario.

Whether you go to a lender directly or use a bridging loan broker, bridging loans are arranged through the same stages. The order below is typical for unregulated, business-purpose bridging finance.

Having the paperwork ready is the easiest way to avoid delays. Requirements vary by lender and by deal, but typical bridging finance applications need:

If you plan to refinance onto development finance once planning is granted, the lender will also want the planning strategy and a basic appraisal; our bridging to development finance guide explains that handover.

Straightforward bridging loans with a low LTV and clean title can complete within days, but most take around 2 to 4 weeks. How long it takes depends less on the lender’s credit decision than on two pieces of third-party work: the valuation and the legal due diligence. For the timeline stage by stage, and how to compress it when a deadline is fixed, read our guide to fast bridging loans.

Valuation. A physical RICS valuation needs an inspection, access and a written report, which can take from a few days to a couple of weeks depending on surveyor availability and property complexity. For lower-LTV residential deals, some lenders accept a desktop valuation or an automated valuation model (AVM), returned within a day or two; see automated valuation models in bridging. Commercial property almost always needs a full inspection.

Legal work. The lender’s solicitor must be satisfied that the title is good and marketable and that the property can be sold or refinanced at the end. Short leases, missing easements, restrictive covenants or unregistered land all take time, and title indemnity insurance is sometimes used for defects that cannot be fixed quickly. Some lenders allow dual representation, where one solicitor acts for both sides, which saves time. In Scotland the process follows Scots law, with missives and registration at the Registers of Scotland; Scotland charges LBTT and Wales charges LTT rather than SDLT.

Yes, in many cases. Because bridging finance is secured on property and repaid from a sale or refinance, lenders put more weight on the asset and the exit than on your credit history. Bad credit such as CCJs, defaults or missed payments narrows the choice of lender and usually means a higher interest rate or a lower LTV, rather than ruling the deal out automatically.

What matters is recency, severity and explanation. A satisfied CCJ from several years ago is treated very differently from a recent mortgage arrears record. Lenders will also check that bad credit will not block your exit: if you plan to refinance onto a buy-to-let mortgage, that lender will run its own credit checks, so a bridging loan with bad credit is only sensible if the refinance lender will accept your profile too.

Disclose everything at the start. Adverse credit found by the lender at underwriting can mean revised terms and lost time; disclosed up front, it can be priced and placed with the right lender.

You pay back a bridging loan in one lump sum from the exit: usually a refinance onto a buy-to-let mortgage, a commercial mortgage or development finance, or a sale of the property or another asset. The exit is what the lender is really underwriting, so you need a clear route to repay the gross loan plus any rolled interest before the term ends.

For a refinance, remember that the new lender applies its own valuation and rental stress tests. If the refurbished house in our example values at £500,000 and the refinance lender offers 75% LTV, the new mortgage would be up to £375,000, comfortably above the £280,000 redemption figure. If it valued at only £380,000, 75% would be £285,000, leaving almost no margin once refinance fees are added.

If the exit is delayed, talk to the lender early. Most will consider an extension, for a fee and sometimes a higher rate, if the plan is still credible. Leaving it until after the term has expired usually means default interest.

Bridging finance is a tool with clear strengths and clear costs. Weigh both before you borrow.

Speed: bridging loans can complete in weeks, sometimes days, where a mortgage takes months. Flexibility: they lend on unmortgageable, vacant or commercial property that mainstream lenders decline. No monthly payments when interest is retained or rolled up. Short terms with early repayment usually allowed after a minimum interest period.

Cost: monthly pricing plus fees makes bridging finance more expensive than a mortgage over any sustained period. Exit risk: the full balance is due at the end of the term. Default costs if the loan overruns. Security risk: the loan is secured on property, and the lender can enforce, including appointing receivers, if it is not repaid.

Often, if you have time and the property is mortgageable. A buy-to-let or commercial mortgage is cheaper for lettable property, and staged development finance is usually better value for construction. Our guide to alternatives to bridging loans compares the options, and the bridging finance guide covers every bridging product we arrange.

We are an independent bridging loan broker, not a lender, with access to a panel of 100+ lenders including specialist bridging lenders and challenger banks. Our founder, Matt Lenzie, has more than 25 years in property finance. If you have a deal in mind, explore our bridging loans service or submit your deal and we will come back with indicative terms and a realistic timeline.