1. The Interest Rate: Monthly, Not Annual
The biggest difference you will notice with bridging finance is that interest rates are typically quoted per month, rather than per year. This is because bridging loans are short-term solutions (usually 1 to 18 months), not 25-year commitments.
- Current Market Rates: On our platform, interest rates start from as low as 0.75% per month.
- Why is it higher? Because these loans are short-term and often carry higher risk for the lender (due to speed or asset condition), rates are higher than standard high-street mortgages.
2. The Fees: What Else to Expect
Beyond the interest rate, there are setup costs involved in arranging specialist finance. Being aware of these upfront helps you calculate your true "cost of credit."
- Arrangement Fee: This is a fee charged by the lender for setting up the facility. This is typically calculated as a percentage of the loan amount (commonly 1% to 2%).
- Valuation Fees: To secure the loan, the lender will need an independent valuation of your property or asset.
- Legal Costs: You will need to cover the legal fees for both yourself and the lender to ensure the charge is correctly registered against the property.
- Broker Fees: As a specialist broker, we work to find you the best deal from the whole of the market. Fees for this service will always be discussed and agreed upon before you proceed.
3. Real-World Example
Let's look at the numbers. This example (taken from our own regulatory guidance) shows how a typical bridging loan might look in practice:
The Scenario: You borrow £100,000 over a 12-month period. The interest rate is fixed at 0.75% per month.
The Cost:
- Monthly Interest Payment: £750.00
- Total Interest Payable (over 12 months): £9,000
- Plus Fees: You would also need to account for an arrangement fee (e.g., 2% or £2,000), as well as valuation and legal costs.
Please note: This is an illustrative example. Rates and terms depend on your specific lender and the complexity of the transaction.
4. How You Pay: "Serviced" vs. "Retained" Interest
One of the major benefits of bridging loans is flexibility in how you pay the interest. This can be a lifeline for cash flow.
- Serviced Interest: You pay the interest every month, just like a standard mortgage. This keeps the total loan balance from growing.
- Retained (or Rolled-Up) Interest: Instead of making monthly payments, the interest is calculated upfront and deducted from the loan advance (or added to the balance). You pay nothing monthly, and repay the original loan plus the interest in one lump sum when you sell the property or refinance.
Summary: Is the Cost Worth It?
Bridging loans are not designed to be a "cheap" alternative to a mortgage; they are a strategic tool.
If paying £9,000 in interest allows you to secure a property at auction for £30,000 below market value, or prevents a house chain from collapsing, the cost of the loan is often outweighed by the profit or security gained.
Get an Accurate Quote for Your Scenario
Every borrower's situation is unique. To get a clear picture of what a bridging loan would cost you with no impact on your credit score, use our quick quote tool.
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