By Clare Yates
7 min read
From helping homeowners buy before they sell, to supporting businesses with tight turnaround projects, short-term bridging loans are built for speed and flexibility.
But like any financial product, they need to be used wisely. They’re not for long-term borrowing and usually come with higher interest rates and fees than traditional loans. In this guide, we’ll walk you through when it makes sense to use one, how they work, and what both consumers and businesses need to know before applying.
What is a bridging loan?
A bridging loan is a short-term loan designed to bridge a financial gap, typically when you need to access funds quickly but are waiting on longer-term finance or the sale of an asset. They’re commonly secured against property, and many UK lenders will approve them within days, rather than weeks or months.
Bridging loans are usually available for terms of 1 to 12 months, though some lenders may offer longer terms depending on your circumstances. Lenders will want a clear exit strategy – how you’re planning to repay the loan – whether that’s through a property sale, refinancing, or business income.
Flexibility of bridging loans
There’s a good deal of tailoring that you can do with bridging loans.
For instance, interest rates can be fixed or variable. Plus, the interest can be paid monthly or rolled up to be paid at the end. If you choose to roll up the interest, you don’t have to make monthly payments. Instead, you settle the whole lot – loan plus interest – in one go when the term ends or when you exit the loan.
It gets better. With ‘open’ bridging loans, if you pay it off early, you stop being charged interest from the day you repay. So, if you take out a 12-month loan but clear it after just 4 months, you’ll only pay 4 months’ interest. Simple as that.
There are other options too though. A ‘closed’ bridging loan means agreeing to a fixed repayment date, which can work well if you have a concrete date that you know your funding will come through. Although less flexible, you might achieve a lower interest rate with this option, so it’s worth weighing up if you have an end date in mind.
When to use a bridging loan for personal use
Personal bridging loans – also known as regulated bridging loans – can be a useful solution for many people, particularly in the standard residential property world. Here are some common scenarios where a consumer bridging loan might help:
Buying a new home before selling your current one: This is one of the most popular uses. If you’ve found your dream home but your current one hasn’t sold yet, a bridging loan can cover the purchase and be repaid when your sale completes.
Breaking a property chain: If someone else in the chain pulls out or causes a delay, a bridging loan can help you keep your purchase on track.
Downsizing or upsizing: If you’re moving to a more expensive property or downsizing and releasing equity, bridging loans can help manage the transition smoothly, especially if timing is tight.
Auction purchases: Buying at auction often means completing within 28 days. A bridging loan can provide the fast finance needed to secure the property.
Renovating a property: If a home isn’t mortgageable due to its condition – for example, no kitchen or bathroom – a bridging loan can fund the purchase and refurbishment until a standard mortgage becomes available.
Tackle one-off expenses: Bridging finance can also help with major life events like divorce settlements or other large, time-sensitive costs that need quick funding.
There are several UK lenders who offer bridging loans to individuals, with flexible terms and options to roll up interest so no payments are due until the loan is settled.
How businesses use bridging loans
Commercial bridging loans – also known as unregulated bridging loans – are secured against properties you’re buying (or already own) as an investment or for business use. So whether it’s a shop, office, or buy-to-let flat, it’s all about funding opportunities that aren’t your main home.
They’re often used by property developers, landlords, or companies that need to act quickly on an opportunity or solve a short-term cashflow issue.
Here are a few examples of how commercial borrowers use bridging finance:
Buying commercial or investment property: If you're buying a retail unit, office, or buy-to-let property and need to move fast, a bridging loan can make that happen while longer-term finance is arranged.
Refurbishment projects: Light or heavy refurbishments that fall outside the scope of traditional buy-to-let mortgages can often be funded through a bridging loan.
Change of use or planning permission: If you're buying a property to convert or apply for planning, a bridging loan can give you time to secure approval or get the building mortgage-ready.
Business cashflow or asset finance: Some companies use bridging loans to raise short-term capital against business property or assets, especially when a large invoice or payment is pending.
Several UK lenders offer commercial bridging finance for developers, portfolio landlords and more. Exit strategies are just as important here – whether that’s refinancing onto a commercial mortgage or selling the property post-renovation.
Things to consider before taking out a bridging loan
While bridging loans can be incredibly useful, they’re not cheap and they’re not for everyone. Here are some key things to weigh up:
Interest rates: Bridging loan rates are usually higher than mortgage rates, as they’re only in place for a short time – sometimes just a couple of months. That said, because they’re secured against property, there’s less risk for the lender, which helps keep rates lower than many other types of short-term borrowing.
Fees: You’ll need to budget for arrangement fees, legal costs, valuation fees and sometimes exit fees. These can vary between lenders, so it’s worth checking the full cost upfront.
Exit strategy: Your repayment plan needs to be solid. If your sale falls through or refinancing isn’t approved, you could be left in a tough spot.
Loan-to-value (LTV): Most lenders will offer up to 75% LTV, potentially higher with additional security. But lower LTVs may mean better rates.
Timescales: These loans are meant to be short-term. According to market analysts Bridging Trends, the average bridging loan term in Q4 2024 was 12 months. If you think you’ll need the funds for more than 12–18 months, a different type of finance might be more suitable.
Regulated or unregulated?
When you’re exploring bridging loans, you’ll often come across the terms regulated and unregulated. This refers to whether or not the loan is covered by FCA rules, and it can affect everything from how the lender treats your application to the level of protection you receive.
With bridging loans, both options are available, but which option is available to you depends on how you intend to use the loan:
Regulated bridging loans are overseen by the Financial Conduct Authority (FCA) and apply when the loan is secured against a property you currently live in or intend to live in.
Unregulated bridging loans are typically used for investment or business purposes and aren’t covered by the same consumer protections. In the UK, unregulated bridging loans are more common, especially in the commercial and property investment space.
Could a bridging loan help you complete your project?
Bridging loans can be a powerful tool in both the consumer and commercial world, giving you fast access to capital when time is tight.
Whether you're a homeowner trying to secure your next move or a developer taking advantage of an investment opportunity, the key is to go in with your eyes open. Understand the costs, know your exit plan, and make sure you’re borrowing from a reputable UK lender with experience in your type of project.
Used wisely, bridging loans can be the link between ambition and action – just make sure the bridge you’re building has a solid path on the other side.