At a glance
- Secured on residential property in England, Wales, Scotland or Northern Ireland
- Usually taken for 1 to 12 months, sometimes up to 24 for investment cases
- Regulated by the FCA if you or a close family member will live in the property
- Repaid in one go from a sale or a mortgage - this is your exit strategy
What is a residential bridging loan?
A residential bridging loan is a short-term loan secured against a house, flat or other home. It is designed to be repaid in a lump sum within months rather than years, usually from the sale of a property or by moving onto a standard mortgage.
People use it when timing is the problem rather than affordability: the purchase has to happen before the money from a sale or a mortgage is available. Because lenders look mainly at the property and the plan to repay, decisions can be quicker than with a high-street mortgage.
When people use residential bridging finance
- Buying before selling. Moving into a new home while your current one is still on the market, or saving a purchase when your buyer drops out. See chain break bridging loans.
- Auction purchases. Auctions usually expect completion within 28 days of the hammer falling, which is too fast for most mortgages. See auction finance.
- Unmortgageable homes. A property with no working kitchen or bathroom, structural issues or a short lease may need work before a mortgage lender will lend on it.
- Refurbishment. Buying a property to renovate and then refinance or sell. See refurbishment bridging loans.
- Downsizing. Releasing equity to buy a smaller home before the family home sells.
Regulated or unregulated?
This is the first question a broker will ask. If the loan is secured on a property that you, or a close family member, live in or will live in, it is normally a regulated bridging loan. That brings Financial Conduct Authority (FCA) rules on affordability checks, the information you must be given and how complaints are handled.
If the property is an investment, such as a buy-to-let or a flip, the loan is usually unregulated. Unregulated lending can be more flexible but has fewer consumer protections. Our guide to regulated vs unregulated bridging loans explains the difference in detail.
How much can you borrow?
Lenders work on loan to value (LTV): the loan as a percentage of the property's value. For residential security, maximum LTVs are commonly around 70% to 75% of the property value, with lower limits for unusual properties. Some lenders will go further if you offer a second property as extra security.
The figure that matters is the gross loan, which includes any fees and interest added to the loan. If interest is retained or rolled up, the amount you actually receive on day one will be lower than the headline loan. Try our bridging loan calculator to see how the numbers fit together.
What it costs
Bridging interest is quoted as a monthly rate rather than an annual one. The rate you are offered depends on the LTV, the property, the strength of your exit and your credit history. On top of interest, expect some or all of the following:
- An arrangement fee, often around 2% of the loan
- A valuation fee, paid upfront
- Legal fees for your solicitor and the lender's solicitor
- An exit fee with some lenders
- A broker fee, if one applies - you will be told before you proceed
Interest can be serviced (paid monthly), rolled up (added to the loan and paid at the end) or retained (set aside from the loan at the start). Rolled-up and retained interest help if you have no monthly income to pay it from, but they increase the amount you owe.
Your exit strategy
Every bridging lender wants to know how the loan will be repaid before they agree to it. For residential loans the usual exits are the sale of your existing home, the sale of the property you are buying, or a remortgage once the property qualifies. A sale that has already exchanged is the strongest exit; a sale that has not yet been listed is weaker and may limit how much you can borrow.
It is worth having a back-up plan. If a sale takes longer than expected, extending a bridging loan is possible with some lenders but adds cost.
Frequently asked questions
Is a residential bridging loan regulated?
It is regulated by the FCA if the property is, or will be, lived in by you or a close family member. Loans on investment property such as buy-to-lets are usually unregulated.
How long can a residential bridging loan last?
Most are arranged for between 1 and 12 months. Regulated bridging loans are normally limited to 12 months, while some unregulated lenders offer terms up to 24 months.
Can I get a bridging loan to buy a house before selling mine?
Yes. This is one of the most common uses. The lender will usually take security on both properties and will look at how realistic the sale of your current home is.
Do I need to pay interest every month?
Not always. Interest can be paid monthly, added to the loan, or retained from the loan at the start, depending on the lender and your circumstances.
Can I get a residential bridging loan with bad credit?
Some lenders will consider adverse credit because they focus on the property and the exit, but it may affect the rate and the amount you can borrow.
Important: Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Think carefully before securing other debts against your home.
This page is general information, not financial advice. Bridging Finance Comparison is a free to use lead generation service run by The Lead Advisory Company Limited. We are not a lender and do not give advice. We introduce enquiries to Curzon Financial, who are authorised by the Financial Conduct Authority (FCA), who may provide advice and arrange finance where appropriate. Rates, fees and criteria depend on your circumstances and the lender.