Are Bridging Loans Expensive?
Bridging loans have gained popularity in recent years as a flexible solution for short-term finance—especially for property buyers and investors who need to move quickly. But one question continues to linger for many first-time borrowers: are bridging loans expensive?
The short answer is: they can be, but not always. Bridging loans do come with a variety of fees and interest costs, but depending on your circumstances and how you use the funds, they can actually be a cost-effective tool that helps you secure opportunities others might miss.
In this guide, we’ll break down the typical costs of a bridging loan, explain why they can be worth it, and help you decide whether this type of finance makes sense for you.
What Are the Typical Costs of a Bridging Loan?
When you apply for a bridging loan, you’ll need to factor in several fees and charges. These can vary depending on the lender, the property type, and the structure of your loan.
Here’s what you’ll typically pay:
1. Arrangement Fee
Most lenders charge a 1–2% arrangement fee, calculated based on the total loan amount. This is a one-off fee paid when the loan is set up.
2. Monthly Interest
Unlike traditional loans that quote annual interest rates, bridging loans use monthly interest rates, typically ranging from 0.5% to 1.5% per month. While this can sound high, remember that bridging loans are short-term—usually between 3 to 12 months.
Depending on the lender, interest can be:
-
Rolled-up (added to the loan and paid at the end),
-
Retained (deducted upfront for the entire term), or
-
Serviced (paid monthly like a regular loan).
3. Valuation or Survey Fees
To assess the value of the property you’re using as security, a valuation or survey will usually be required. This cost typically ranges from £300 to £1,000, depending on the property’s value and location.
4. Legal Fees
Both your legal costs and the lender’s legal costs are generally payable by the borrower. Expect to pay between £800 and £2,000+, particularly if the loan is complex or involves multiple properties.
5. Broker Fees
If you use a bridging loan broker, they may charge a fee—usually around 1% of the loan amount, though some brokers are paid directly by lenders instead.
6. Additional Admin Fees
These may include:
-
Drawdown fees
-
Redemption fees
-
Telegraphic transfer fees
While these are usually minor compared to the other charges, they’re still worth budgeting for.
So… Are Bridging Loans Really That Expensive?
It’s a common myth that bridging loans are outrageously expensive. Yes, they cost more than a standard mortgage—but they’re designed for a very different purpose.
Bridging loans are fast, flexible, and available when other types of finance aren’t. That agility can unlock huge value—like securing a below-market-price property or avoiding a collapsed property chain.
Here’s an example: if a bridging loan helps you buy a property quickly at auction or complete a time-sensitive purchase, the savings on the deal could outweigh the cost of the loan. In this way, bridging loans often pay for themselves through the value they help secure.
Are There Cheaper Alternatives?
In some cases, yes. Traditional mortgages or secured loans may offer lower rates—but they come with slower application processes and stricter eligibility requirements.
If you:
-
Need to borrow for longer than 12–18 months,
-
Aren’t in a hurry, or
-
Qualify for a regular mortgage,
then a bridging loan might not be your best option. But for speed, flexibility, and certainty, it’s hard to beat bridging finance.
Bridging Loan Costs: The Bottom Line
Bridging loans aren’t cheap, but they’re not unnecessarily expensive either. Like any form of borrowing, they should be used for the right reasons and with a clear exit strategy in place.
Key Takeaways:
-
The main bridging loan costs include interest, arrangement fees, legal and valuation fees, and possible broker/admin charges.
-
Bridging interest is quoted monthly and varies based on the loan amount, LTV, property condition, and borrower profile.
-
Despite the charges, bridging loans can be cost-effective when used strategically.
-
More lenders and increased competition have led to more affordable rates across the market.
If you’re considering a bridging loan then you will need legal advice to ensure you get the best terms for your needs. Contact us via the contact us form for a free consultation.