Our Alternative Guide to Bridging Loan Rates

Bridging loans are short-term loans and by their nature are different to residential mortgages or buy-to-let products, where you choose a fixed-rate product for two or more years.  Bridging loan rates are advertised on a monthly basis and currently, average monthly interest rates in the bridging market are around 0.99%. While this may seem expensive at first glance, the fast turnaround available with bridging loans means they can help make sizeable savings elsewhere in the project.

Bridging loan rates

Bridging loan rates are typically calculated based on a variety of factors. One of the primary factors that influence bridging loan rates is the loan-to-value ratio (LTV). LTV is the proportion of the property’s value that is being borrowed. Generally, a lower LTV indicates lower risk to the lender and consequently leads to lower interest rates. Conversely, a higher LTV signifies higher risk, often resulting in a higher interest rate.

Bridging finance can be arranged on a first or second-charge loan basis, with first-charge bridging loans typically being cheaper than seconds. Regulated and non-regulated options are available, depending on the property being used as the security.

The type of property can also affect the bridging loan rate. For example, residential properties usually come with lower rates than commercial properties because they are seen as less risky investments. Furthermore, properties that are in good condition or located in desirable areas may lead to more favourable rates.

The term length is another key determinant. While bridging loans are typically short-term, those with longer terms may carry higher rates because they involve more risk over an extended period.

The borrower’s credit history plays a significant role as well. Borrowers with strong credit scores and a history of timely repayments are generally offered more competitive rates. Those with poor credit history might still secure a bridging loan, but they will likely face higher interest rates due to the increased risk perceived by the lender.

The exit strategy is another factor. Expert lenders need to be confident that the borrower has a clear and achievable plan to repay the loan, such as through the sale of the property or refinancing. If the exit strategy seems more uncertain or risky, this could increase the loan rate.

Bridging Loan Fees

There are a number of different fees that may be applicable and need to be factored into bridging costs. The lender will often charge an arrangement fee or typically 1-2% of the total loan amount, which can be added to the loan so will not have to be paid upfront.

A valuation fee will be charged to cover a rudimentary survey of the property being used as security for the loan; this is undertaken for the benefit of the lender.

Legal fees will need to be covered by the applicant if the lender demands separate legal representation. There are some bridging lenders who will allow dual representation, which could result in lower costs for the applicant.

In some circumstances, lenders will charge an exit fee, which could be either one month’s interest or 1-2%. Such fees are charged on repayment of the loan and are typically added to the loan balance.