Bridging loan costs explained

Interest

Bridging interest is quoted as a monthly rate. On a £400,000 loan, a rate of 0.75% a month is £3,000 of interest a month. Interest is usually charged only for the months the loan is outstanding, though most lenders apply a minimum interest period, often one to three months.

How interest is paid makes a real difference to cost and to the cash you receive:

• Retained interest is calculated for an agreed period and deducted from the loan at the start. There are no monthly payments, and unused interest is usually refunded if you repay early.
• Rolled-up interest is added to the balance each month and repaid at the end. Because interest is charged on interest already added, the total can be slightly higher than simple monthly interest.
• Serviced interest is paid monthly from your own funds. The net advance is higher, but you need income to cover it.

Rates vary with loan to value, property type, credit profile and the complexity of the case. Instant quotes on this site show indicative from rates for lenders on our panel, not offers.

Arrangement fee

Almost every bridging lender charges an arrangement fee, also called a facility or completion fee. It is typically expressed as a percentage of the gross loan, commonly around 1% to 2%, and some lenders set a minimum fee.

The fee is usually added to the loan rather than paid upfront. That keeps your cash requirement down, but it counts towards the gross loan, so it reduces the net advance where the lender is at its maximum loan to value.

When comparing offers, consider the fee and the rate together. On a short loan, a lower fee can matter more than a lower rate. On a longer loan, the rate usually has more effect. We set out both for each lender so the comparison is like for like.

Exit fees

Some bridging lenders charge an exit fee when the loan is repaid. It may be a percentage of the loan, or a set number of months' interest. Many lenders do not charge one at all, which is worth weighing when comparing products with similar rates.

Development and development exit facilities more commonly include exit fees, sometimes calculated on the GDV or on the sale proceeds of each unit. Read how the fee is calculated, as a fee on GDV can be considerably larger than one on the loan amount.

Also check for other charges at redemption, such as a redemption administration fee, and what happens if the loan runs past its end date. Default interest and extension fees can significantly increase cost if the exit is delayed.

Valuation fees

Every bridging lender requires a valuation from a surveyor on its approved panel, and the borrower pays for it. The cost depends on the value and type of property, and is usually paid upfront, before the lender issues a formal offer.

Commercial property, development sites and higher-value properties usually cost more to value than standard residential property. Development and heavy refurbishment cases may also need a monitoring surveyor, whose initial report and site visits are charged separately.

A valuation is usually addressed to one lender and is not automatically transferable. Choosing the right lender before instructing the valuation avoids paying for a second report.

Legal fees

Bridging loans usually involve two sets of legal fees: your own solicitor's, and the lender's solicitor's. The borrower normally pays both. Some lenders allow a single firm to act for both parties on straightforward cases, which can reduce cost and time.

Legal costs rise with complexity. Multiple properties, leasehold titles, company borrowers, personal guarantees and second charges all add work. On a purchase, your conveyancing costs, searches and stamp duty are additional to the costs of the loan itself.

Instructing a solicitor experienced in bridging transactions helps, as they will be familiar with the lender's requirements and the pace that bridging cases usually need.

Broker fees and commission

We may charge you a fee for our services and, in addition, the lender we introduce you to will typically pay us a commission, either as a fixed fee or as a percentage of the amount you borrow.

Where a client fee, broker fee, appraisal fee or commitment fee applies, this will be disclosed separately before you proceed. If you would like further information about any commission paid to us by a lender, including the amount, please ask us in writing.

To compare the total cost of a bridge, add up the interest for your expected term, the arrangement fee, any exit fee, the valuation, both sets of legal fees and any broker fee. We set out these figures for the lenders we recommend so you can see the full picture.

Comparing two offers

The cheapest rate is not always the cheapest loan. Consider two illustrative 9-month bridges of £300,000. One has a rate of 0.75% a month, a 2% arrangement fee and a 1% exit fee. The other has a rate of 0.85% a month, a 1% arrangement fee and no exit fee.

• First offer: interest of £20,250, an arrangement fee of £6,000 and an exit fee of £3,000, a total of £29,250
• Second offer: interest of £22,950 and an arrangement fee of £3,000, a total of £25,950

On these assumptions, the higher rate is cheaper overall. If the loan ran for longer, the lower rate would gradually close the gap. These figures are for illustration only and exclude valuation and legal costs, which also differ between lenders.

The point is to compare the total cost over the term you realistically expect, including a margin for delay, rather than the headline rate alone.

Common questions

This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.