Residential mortgages:
Bridging the gap
Sometimes the timing of a property purchase does not match the availability of the money needed to complete it. Your next home may be ready to buy before your current property has sold, or a purchase may need to complete before longer-term mortgage funding can be arranged.
Regulated bridging finance can provide short-term borrowing to cover that gap. It is secured against property and is intended to be repaid through a clearly identified event, such as a sale or an agreed route to refinancing.
The starting point is understanding both sides of the arrangement: how the money will help you achieve your plans, and how the loan, interest and fees will be repaid.
What makes bridging finance regulated?
A bridging loan will generally fall within the regulated mortgage framework where it is secured against a property that you or a qualifying family member occupy, have occupied, or intend to occupy, as a home, subject to the relevant legal tests and exemptions.
The assessment considers the borrower, the security and its use. It is not determined solely by what the money will be spent on. For example, borrowing against your own home to fund a property investment may still require a regulated loan.
Regulated bridging is subject to Financial Conduct Authority rules governing matters such as advice, disclosure and responsible lending. However, regulation does not remove the financial risks or the need for a workable repayment plan.
Your adviser and lender should establish the correct regulatory treatment at the outset.
When can bridging finance help?
Bridging can be useful where there is a temporary funding gap and a credible means of repaying the borrowing within the agreed term.
Common situations include:
Buying your next home before selling your current one
Keeping a purchase moving when a chain breaks
Downsizing where the purchase money is tied up in your existing home
Completing an auction purchase within the required timetable
Purchasing a property that needs work before it qualifies for a conventional mortgage
The property, proposed works and repayment arrangements must fit the lender’s criteria. A bridging loan is not automatically suitable simply because a transaction is urgent.
Buying before selling
Bridging can allow you to complete a purchase while your existing home remains on the market.
The lender will consider the likely sale proceeds, any existing mortgage that must be repaid and the time reasonably needed to achieve a sale. An optimistic asking price is not enough: the repayment plan must be supported by a realistic assessment of value and marketability.
Read more about moving home.
Downsizing
Someone moving to a less expensive property may have sufficient equity to buy their next home outright once the existing property sells, but need temporary funding to complete the purchase first.
Bridging can sometimes make this possible without a long-term mortgage. The sale proceeds must still cover the existing borrowing, the bridge, interest, fees and selling costs.
Buying before selling
Bridging can allow you to complete a purchase while your existing home remains on the market.
The lender will consider the likely sale proceeds, any existing mortgage that must be repaid and the time reasonably needed to achieve a sale. An optimistic asking price is not enough: the repayment plan must be supported by a realistic assessment of value and marketability.
Downsizing
Someone moving to a less expensive property may have sufficient equity to buy their next home outright once the existing property sells, but need temporary funding to complete the purchase first.
Bridging can sometimes make this possible without a long-term mortgage. The sale proceeds must still cover the existing borrowing, the bridge, interest, fees and selling costs.
How the borrowing is secured
A lender may take security over your existing home, the property being purchased or both.
A first charge gives the bridging lender priority over subsequent secured lenders. A second charge sits behind an existing mortgage, potentially allowing that mortgage to remain in place, subject to the lenders’ requirements.
Where more than one property provides security, the arrangement should explain how each property will be released when money is repaid.
Using additional property can increase the security available, but it also exposes that property to the borrowing. Everyone providing security needs to understand the commitment.
How much can you borrow?
The amount available depends on the lender’s valuation, maximum loan-to-value ratio, existing secured borrowing and the proposed repayment plan.
There is also an important distinction between the headline loan and the money available to use.
Fees, interest allowances and repayment of an existing mortgage may reduce the amount released to you. A quoted facility of £300,000 does not necessarily provide £300,000 towards your purchase.
Your adviser should establish:
The net funds required to complete your plans
Any existing borrowing that must be repaid
Fees and interest included within the facility
The expected amount needed to repay the loan in full
These figures should be considered together before agreeing the borrowing.
Interest and other costs
Bridging finance generally costs more than a conventional residential mortgage. Rates are often quoted monthly, so they should not be compared directly with an annual mortgage rate.
How interest is paid
Many regulated bridging products allow interest to be rolled up and paid when the loan is repaid, rather than requiring monthly interest payments.
Some arrangements retain an allowance for interest from the facility at the outset. Others may permit monthly payments, subject to the lender’s assessment.
The method affects both the cash available and the eventual repayment amount. Having no monthly payments does not mean the borrowing is interest-free.
Fees and repayment terms
Costs may include:
A lender arrangement fee
Valuation fees
Your solicitor’s fees and the lender’s legal costs
Indemnity insurance premiums, where required
A broker or advice fee
Administration or redemption fees
Any applicable exit fee or minimum interest charge
Some lenders allow early repayment without an early repayment charge, but minimum interest or other fees may still apply.
The comparison should show the likely total cost over your expected borrowing period, together with the cost if repayment takes longer.
The repayment plan
The repayment plan, often called the exit strategy, is central to a bridging application.
The lender needs evidence that the full debt can be repaid within the agreed term. Substantial equity helps, but it does not replace a clear explanation of how repayment will happen.
Repayment through a property sale
The assessment should allow for the existing mortgage, selling expenses and the full bridging repayment.
It should also consider whether repayment remains achievable if the property sells for less than expected. Where the home has not yet sold, the marketing strategy and realistic sale timescale matter.
Repayment through refinancing
If a longer-term mortgage will repay the bridge, its feasibility should be assessed before the bridging loan is arranged.
This includes your income, credit history, intended borrowing and the property’s suitability for the eventual mortgage lender. Where works are needed, the budget, timetable and completed condition also matter.
A plan to “get a mortgage later” needs supporting evidence. Future approval cannot simply be assumed.
Allowing for delays
The loan term should provide a realistic window for repayment. Regulated bridging products commonly have terms of up to twelve months, although the available term depends on the lender and arrangement.
A delayed sale, lower valuation or unsuccessful refinance can create a shortfall. Extending the loan or replacing it with another bridge may be expensive or unavailable and should not be assumed.
If difficulties arise, speak to your adviser and lender promptly. Failure to repay can put any property securing the loan at risk, including your home.
Choosing the right approach
Bridging should be considered alongside alternatives such as coordinating the sale and purchase, selling first, using available savings or arranging suitable longer-term borrowing.
Its value lies in solving a temporary funding problem where the benefit justifies the cost and the repayment plan is sound.
Our role is to assess the complete arrangement, explain the costs and responsibilities, and help ensure that obtaining the money and repaying it receive equal attention.
It starts with a conversation.
Frequently asked questions.
Every client and every mortgage is different, but there are some questions we are asked regularly.
From affordability and deposits to complex income, expat mortgages and specialist property finance, our FAQs explain how different lenders may approach different circumstances.
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