What Is a Bridging Loan?
A bridging loan is short-term secured finance, typically used to fund a property purchase or refurbishment project where conventional mortgage finance is not available or appropriate. In a refurbishment context, bridging finance allows an investor to purchase a property in poor condition (which a standard mortgage lender would not lend against), carry out the works, then either refinance onto a BTL mortgage or sell.
| Feature | Typical Range |
|---|---|
| Monthly interest rate | 0.55%–1.5% per month |
| Arrangement fee | 1%–2% of loan value |
| Term | 1–24 months |
| LTV (purchase) | Up to 75% of purchase price |
| LTV (refurbishment) | Up to 70%–75% GDV |
| Exit fee | 0%–1% (varies by lender) |
| Valuation | Required (desktop or full) |
Bridging Finance in BRRR Strategy
BRRR (Buy, Refurbish, Refinance, Rent) is an investment strategy where an investor purchases a below-market property, refurbishes it to increase its value, refinances onto a long-term BTL mortgage based on the new higher value, and rents it out. Bridging finance is the tool that funds the purchase and refurbishment phase.
The exit of the bridging loan is the refinance onto the BTL mortgage. The lender assesses the post-refurbishment value (GDV -- gross development value) when determining how much can be borrowed at refinance. A successful BRRR outcome typically sees the investor recovering most or all of their initial capital in the refinance.
Understanding the True Cost
Bridging loans are more expensive than conventional mortgages. A 0.85% monthly rate on a £200,000 loan costs £1,700 per month in interest. Over a 6-month refurbishment, that is £10,200 in interest before arrangement fees. This cost must be built into the project appraisal and covered by sufficient uplift in property value.
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Estimate total bridging loan costs for your project. Free estimate-only tool.
Estimate only. Not financial advice.
Exit Strategy: The Critical Factor
Lenders assess exit strategy carefully. For refurbishment bridging, the exit is typically either: (a) refinance onto a BTL mortgage once the property meets standard mortgage criteria, or (b) sale of the improved property. Lenders want confidence the exit is achievable within the loan term. Speculative projects without a clear exit are harder to finance.