Bridging loans have been used by UK individuals and businesses since the 1960s, providing a versatile solution for short-term financial support.
Whether you’re navigating a time-sensitive property purchase, covering business expenses, or sourcing new opportunities in the property market, bridging loans can — literally — bridge financial gaps quickly and efficiently.
Let’s take a closer look at the different types of bridging loans available in the UK so you can make an informed decision on whether it’s the best option for you.
What Is A Bridging Loan?
A bridging loan is an attractive alternative to traditional lending routes designed to bridge the gap between an immediate purchase and a mortgage, business loan, or the sale of another property. If you’re well-prepared, they are relatively quick to set up (sometimes in just a matter of days) and offer tons of flexibility.
Bridging loans are typically used to secure property or land. They are often used by property buyers or developers needing to quickly secure a purchase or by businesses requiring immediate access to finances to cover cash flow gaps for equipment or project funding.
Types Of Bridging Loans
Bridging loans are not one-size-fits-all. They come in various forms, tailored to different financial needs and circumstances. Here are the main types of bridging loans available in the UK.
Open Bridging Loans VS Closed Bridging Loans
Before we go into the specific types of bridging loans, it’s important to note that bridging loans fall into two broad categories: open and closed.
Open bridging loans are for borrowers without a fixed repayment date. This is an ideal agreement if you’re waiting for funds from a property sale.
On the other hand, closed bridging loans have a pre-agreed repayment date that’s often tied to a confirmed event like a property sale or mortgage approval. Due to the reduced risk for lenders, closed loans tend to have lower interest rates.
Learn more about open and closed bridging loans.
Residential Bridging Loans
Residential bridging loans are designed for individuals purchasing, renovating, or refinancing residential properties. Whether you’re buying a new home while waiting for your existing one to sell or investing in a buy-to-let property, this type of bridging loan offers a quick and flexible funding solution.
So, how can bridging loans help UK property buyers? For UK property buyers, time is often of the essence. Bridging loans offer a speedy solution when traditional mortgage arrangements may be too slow. For this reason, bridging loans can be a great option for property investors, first-time buyers, and homeowners
Property buyers can use bridging loans to:
- Navigate property chain delays and secure a desired property before selling their existing one.
- Fund urgent renovations on a property that doesn’t quite meet traditional mortgage criteria.
- Make time-sensitive auction purchases where transactions have to be completed within tight deadlines.
Discover more about residential bridging loans.
Commercial Bridging Loans
Commercial bridging loans can help businesses purchase or develop commercial properties. They are commonly used to fund office spaces, retail units, and industrial facilities.
Explore commercial bridging loans.
Land Bridging Loans
Land bridging loans are tailored for those purchasing plots of land for development or investment purposes. They provide funding for undeveloped land and sites with planning permissions.
Learn about land bridging loans.
Business Bridging Loans
Businesses can face cash flow challenges and might need quick funding for growth opportunities. Business bridging loans help cover short-term expenses, help purchase stock, or fund expansion plans.
Learn more about business bridging loans.
Auction Bridging Loans
Auction purchases often have tight deadlines, giving buyers little time to pursue traditional finance routes like mortgages or equity releases. Auction bridging loans mean that buyers can complete property purchases within the required timeframe.
Find out how auction bridging loans work.
Agricultural Bridging Loans
For farmers and rural businesses, agricultural bridging loans offer funding for purchasing farmland, equipment, or other agricultural developments.
Read more about agricultural bridging loans.
Bridge-to-let Mortgage
A bridge-to-let mortgage is ideal for landlords wanting to purchase and prepare a property for renting. This type of loan allows property investors to secure properties quickly and refinance onto a buy-to-let mortgage down the line.
Learn about bridge-to-let mortgages.
Second Charge Bridging Loans
Second-charge bridging loans provide additional funding for a property with a mortgage. This allows borrowers to unlock equity swiftly without disrupting their primary mortgage.
Learn more about second-charge bridging loans.
Bad Credit Bridging Loans
For those with poor credit scores, bad credit bridging loans provide a viable solution when traditional lenders may reject them. Bad credit bridging loan lenders are less concerned about credit score, but instead focus on the security you offer back to the loan. This could be an asset, like a property.
Learn about bad credit bridging loans.
100% Bridging Loans
If someone has enough extra assets to offer as security, a 100% bridging loan can cover the full value of a purchase. They’re ideal for buyers who don’t have much money available upfront.
Explore 100% bridging loans.
What Is The Difference Between A First Charge And A Second Charge Bridging Loan?
A first charge bridging loan is the primary loan secured against a property, while a second charge bridging loan is secured as well as an existing mortgage. Second-charge loans are often used for extra funding.
How Much Could I Borrow With A Bridging Loan, And How Much Will It Cost?
Bridging loans range from £50,000 to over £25,000,000, depending on the value of the security provided. Loan to Value (LTV) typically caps at 80%, but this could extend to 100% with additional assets.
Try our bridging loan calculator to find out how much you could borrow.
The cost of a bridging loan depends on factors like the type of security, LTV, term, and the borrower’s profile. Rates typically range from 0.45% to 1.65% per month, with additional fees such as lender arrangement fees (around 2%) and valuation costs.
What Is A Bridging Loan Exit Strategy?
Bridging loans are designed to cover immediate needs (like buying property quickly), but they don’t last forever and can come with high interest rates. An exit strategy is a plan to repay your loan when the term ends and often involves refinancing or selling a property or another asset.
Understand refinancing and exit strategies.
How Do I Choose The Best Bridging Loan?
Selecting the correct type of bridging loan depends on your financial circumstances, required terms, and the purpose of the loan. Our professional brokers at Pyxis Capital can help you navigate your options to find the best fit. Give us a call today to discuss your requirements.
Arrange Your Bridging Loan With Pyxis Capital Today
At Pyxis Capital, we specialise in providing bridging finance solutions. Our brokers will take all the time you need to understand your needs, including an exit plan strategy.
With access to leading UK lenders and private investors, our team can secure the right bridging loan for you.