How much are you likely to pay for your bridging loan? And what additional rates and fees are charged by lenders?
Bridging loans are one of the more expensive forms of alternative finance. While lender’s terms will vary, this article will explore some typical rates so you can assess whether you feel they are appropriate for your situation.
Bear in mind that since only a portion of the bridging finance industry is regulated by the FCA, you will need to research each lender carefully to ensure no hidden fees. These loans are not known as ‘caveat loans’ for nothing.
Compare market-leading bridging loan quotes with no obligation
- Loans from £20,000 to £30m plus
- Max 75% LTV first charge 70% second charge
- Secured on Residential and Commercial property
- Adverse credit considered
- Both Regulated and Non-Regulated Bridging Loans
What do bridging loans cost?
The cost of a bridging loan includes an arrangement fee (1% – 2% of the loan amount), monthly interest (0.45% – 2%), possible exit fee (1% – 2% of the loan amount), and various other fees like valuation, legal, and administration fees.
Additionally, a 25% deposit of the property value is required.
Of course, these costs will vary depending on the lender, the amount borrowed, and the length of the loan.
The two factors that are most likely to affect the cost of your bridging loan the most are the interest rate and the term.
Generally, the higher the interest rate and the longer the term, the more you will pay for the bridging loan.
However, there are other factors that can also affect the cost, such as your credit history and the size of the security you can offer.
Here is a table that summarizes the typical costs of a bridging loan:
|Arrangement fee||One-time fee charged by the lender, usually 1-2% of the loan amount|
|Monthly interest||The monthly interest rate charged on the loan, usually 0.5-2% of the loan amount|
|Exit fee||Fee charged by some lenders when the loan is repaid, around 1-2% of the loan amount|
|Valuation fee||For the property valuation report, typically £200-£1000|
|Legal fees||Fees for legal work related to the loan, usually £500-£2000|
|Broker fee||If using a broker, typically 0.5-2% of the loan amount|
|Administration fee||One-time fee charged by the lender for setting up the loan, around £500|
|Deposit||Downpayment required on the property, usually around 25%|
|Early repayment charge||May apply if repaying loan before maturity, around 1-5% of outstanding balance|
|Rolling up interest||Interest gets added to the loan balance each month rather than being paid off|
The Costs of a Bridging Loan in Detail:
Bridging Loan Arrangement Fees
Arrangement fees, also known as product fees or facility fee, are charged by almost all lenders. Generally, around 1-3% of the amount borrowed is charged as an arrangement fee
Therefore, for a bridging loan of £500,000 this would mean a one off fee of £5000-£10,000.
Arrangement fees are usually waved for large bridging loans.
Monthly Interest Rates
In addition, a 1% monthly interest fee is usually levied, meaning that on a £500,000 loan, you should expect to pay another £5000 per month.
Expect to pay at least 25% of the property’s value in deposit. In rare cases, 20% may be possible.
Some bridging loan lenders charge what is called an exit fee, which means a charge to finish the loan. Exit fees are roughly a further 1%, which means that on a £500,000 loan, you should expect to pay another £5000 per month.
Brokers typically charge between 0.5% and 2% for arranging a bridging loan deal.
Lenders will have their own fee structure which includes a section called ‘legal costs’. These are usually passed on to the borrower and include redemption costs.
On average you should expect these to start £950 + VAT for a £500,000 regulated bridging loan.
Valuation Report Cost
Most bridging loans require a paid valuation. For larger deals this may be waived or absorbed by the lender but in other cases you should expect to find charges of £250 to £1000 for these.
Admin (Drawdown) Fees
Lenders typically charge a £500 admin fee.
When are Bridging Loan Fees Paid?
Most of these fees are due at the end of the term, but the following will be paid upfront:
- broker fees
What is the Average Interest Rate on a Bridging Loan?
The average interest rate on a bridging loan can vary depending on the specific loan terms, market conditions, and a borrower’s individual situation. However, some general guidelines on current UK bridging loan rates are:
- Open bridging loans – 0.5% to 0.75% per month. This equals an annual interest rate of 6% to 9%.
- Closed bridging loans – 0.35% to 0.6% per month. Around 4.2% to 7.2% annual interest.
- Large/complex loans – Over £1 million, for example, may have rates of 0.85% per month or higher.
- Loans for commercial property – Tend to have higher monthly rates of around 1%.
- Refurbishment loans – May charge 1% to 1.5% per month to account for additional risk.
Bridging loan rates are usually quoted in monthly interest, but annual equivalent rates are typically 6-12% overall depending on the loan type. Having 20-30% equity in the property you are selling will help secure more competitive rates.
9 things that affect bridging loan interest rates
There are several key factors that can affect the interest rate and overall interest costs on a bridging loan:
- Loan to value ratio (LTV) – The higher the LTV, the higher the interest rate is likely to be. This is because higher LTV represents greater risk for the lender.
- Credit score – Borrowers with better credit scores can typically access lower interest rates. Lenders view them as lower risk.
- Loan term – Shorter loan terms often have lower interest rates. Longer terms increase overall interest costs.
- Open vs closed loan – Open bridging loans generally have higher interest rates than closed loans.
- Security on the loan – Loans secured on property tend to have lower rates than unsecured loans.
- Loan amount – For larger loans above £500k for example, lenders may charge higher rates.
- Additional fees – Arrangement fees and early repayment charges can increase costs.
- Property value – If lenders don’t perceive property as easily sellable, rates may be higher.
- Market conditions – When credit is more freely available, competition can push rates down.
The best way to get a competitive rate is to shop around with brokers and compare options. Improving your credit score and LTV can also help secure more favourable interest rates.
How is interest charged on a bridging loan?
Bridging providers charge interest in 3 different ways:
- Monthly – As with an interest-only mortgage, this system means you pay the interest off each month while the overall loan amount remains the same.
- Rolled Up or Deferred Interest – For borrowers who don’t want ongoing monthly payments, the interest is not paid each month but simply added to a final amount which is paid at the loan’s end.
- Retained Interest – In this scenario, the total interest is calculated at an agreed rate at the beginning and added to the total bridging finance figure.
Are Bridging Loans Expensive?
While comparing bridging loans to some other forms of finance might give the impression they’re expensive, the key thing is to realise they are their own entity, and not really comparable. They are intended as a highly flexible short term loan for a specific purpose, offered to borrowers who might not qualify for traditional finance. With their higher levels of risk, lenders generally put their percentages up.
How can I get a lower rate on my bridge loan?
Here are some tips that can potentially help you get a lower interest rate on a bridging loan:
- Have a substantial deposit ready – Lenders prefer a high loan-to-value ratio. A 40-50% deposit shows you have skin in the game.
- Present a solid exit strategy – Showing a clear plan for repaying the loan at maturity lowers risk for lenders.
- Use a lower-risk property – Commercial property or land used as collateral is viewed as higher risk than residential.
- Keep the term short – Interest rates are usually lower for 6 or 9 month terms versus 12 months. Avoid extending the term.
- Have a strong credit history – Good credit with minimal missed payments helps demonstrate creditworthiness.
- Show strong income and cash flow – Solid provable income and healthy business cash flows make for a stronger application.
- Use assets as additional security – Extra assets used as security alongside the main property can enhance your profile.
- Borrow a lower amount – Requesting a lower percentage of property value can mean better rate offers.
- Get multiple quotes – Comparing loan quotes from different lenders encourages them to offer competitive rates.
- Avoid peak periods – Applying when lender demand is low rather than at busy times can reduce rates.
- Use a broker – An experienced finance broker may be able to source lower rate deals not advertised publicly.
Which lenders are currently offering the lowest bridging loan rates?
Here are some of the lenders offering competitive bridging loan rates in the UK currently, based on available market data:
- Shawbrook Bank – Offers rates starting from 0.60% per month for residential bridging loans, and 0.75% for commercial loans.
- Roma Finance – Has pricing ranging from 0.55% to 0.70% per month for low risk bridging loans.
- MTF Bridging – Average monthly rates are between 0.75% to 0.90% for standard bridging loans.
- West One Loans – Current rates offered are in the 0.70% to 0.80% per month range.
- Glenhawk – Can offer monthly rates as low as 0.50% in some cases for strong borrowers.
- ASTL Members – While rates vary, some ASTL lenders provide pricing from 0.60% per month.
- Octopus Real Estate – Octopus has offered select deals around 0.50% per month for preferred borrowers.
Disclaimer: Bridging loan rates are subject to frequent change so please verify current pricing.
How to Get the Best Possible Bridging Finance Rates
We’re often asked whether there are particular techniques to finding the best possible bridging loan rates. The simple answer is that the best method is to compare as many lenders as possible. As a competitive and ever-changing industry, many lenders will undercut each other, or offer preferential rates for particular types of finance based on their strengths.
Of course despite these variables, all potential borrowers will find their rates dependent on the following:
- What is the suggest exit strategy?
- Level of security / collateral
- Credit History
- Track record in property development
Costs of Bridging Finance FAQs
What are the main costs associated with a bridging loan?
The main costs of a bridging loan include arrangement fees, monthly interest payments, valuation and legal fees, and any broker fees if using a broker. Most lenders will also require a deposit, usually around 25% of the property value.
How are the interest rates and monthly payments for a bridging loan calculated?
Bridging loan rates are quoted as a monthly percentage of the loan amount. For example, 0.5% monthly interest on a £100,000 bridging loan would equal £500 in interest each month. This is usually an interest-only payment.
Do I have to pay interest monthly on a bridging loan or can it be rolled up?
Most bridging loan lenders will require monthly interest payments. However, some may offer options to roll up interest on a bridging loan, where it gets added to the total loan balance each month instead of being paid off. This increases overall repayment costs.
What arrangement fees are charged for a bridging loan and when are they paid?
Arrangement fees are one-time upfront charges to set up the bridging loan, usually 1-2% of the amount borrowed. So a £100,000 bridging loan could have a £1,000-£2,000 arrangement fee. These fees are due at closing.
How much are valuation and legal fees for bridging finance?
Expect £200-£1000 for a valuation report and £500-£2000 for legal fees related to the bridging finance. These are also due upfront at closing.
Will I pay any fees when repaying a bridging loan?
Some lenders charge exit fees of around 1-2% of the bridging loan amount. It’s also important to check if there are early repayment penalties if you repay the bridging loan before maturity.
Can I get bridging finance without paying fees?
No lender will provide fee-free bridging finance, but it’s possible to negotiate reduced or waived fees for very large bridging loans over £1 million. For most borrowers, fees are a standard part of the bridging loan process.
How can I reduce the fees on bridging finance?
Getting quotes from multiple lenders can help reduce bridging finance costs through competition. A strong credit history, lower LTV, and flexible terms may allow you to negotiate lower fees as well. Using an asset as additional security can also sometimes reduce fees.