What is bridging finance and how does it work?
Bridging finance is a short-term loan designed to “bridge the gap” between the purchase of a property and longer-term financing or resale. It’s commonly used in auction purchases where speed is essential and traditional mortgage processes can’t keep up with the tight 14- or 28-day completion deadlines.
For many buyers, bridging finance is the only realistic way to secure a property at auction and avoid defaulting on the contract.
Bridging Loan | Traditional Mortgage |
---|---|
Short-term (3–18 months) | Long-term (10–30 years) |
Quick to arrange (5–10 days) | Slow approval (3–6 weeks) |
Higher interest rates | Lower interest rates |
Asset-backed lending | Income and affordability-based |
Flexible repayment | Monthly repayments or interest retained |
Bridging loans are usually secured against the property you are buying, and sometimes another property you already own.
HOW MUCH DOES IT COST?
Bridging loans tend to be more expensive than standard mortgages. Costs may include:
- Monthly interest (usually 0.6%–1.2%)
- Arrangement fee (1%–2%)
- Legal and valuation fees
- Exit fees (sometimes, depending on the lender)
Some lenders offer “retained interest” — where the interest is deducted from the loan upfront, so you don’t pay monthly.
WHEN IS IT A GOOD OPTION?
- You need to complete quickly (e.g. 14 days post-auction)
- The property is not mortgageable (e.g. no kitchen/bathroom, short lease)
- You plan to refurbish and sell or refinance
- Your mortgage isn’t ready but you want to secure the deal now
Bridging lenders are more flexible than banks and will often lend on unusual properties, titles, or structures.
RISKS AND CONSIDERATIONS
- Interest adds up quickly — it’s not suitable for long-term borrowing
- If you can’t refinance or sell, you risk default and repossession
- You must have a clear exit strategy (e.g. mortgage, sale, or investment return)
- Not all bridging lenders are regulated — always use a reputable provider
SUMMARY
Bridging finance can be a powerful tool for auction buyers — giving you the speed and flexibility to complete where a mortgage would fall short. At Versus Law, we work closely with specialist bridging lenders and can assist with all legal aspects of the transaction, ensuring funds are drawn down and applied properly within the deadline.