Whether you are working on a development, require short-term property finance or need an alternative financial solution to bridge the gap between selling a property and purchasing a new one, there is a financial solution available.
Bridging loans serve as quick financial alternatives, typically requiring a shorter commitment. Borrowers usually face a repayment period of up to 12 months, with a minimum period of 1 month, when taking out a bridging loan, and they are quickly growing in popularity due to their convenience, flexibility and quick repayment plans.
At Bridging Finance Solutions, we have provided bridging loans for a range of clients, supporting them in completing projects or obtaining developments. Though bridging loans can be a fantastic and flexible solution, like any loan, they have to be repaid.
In the UK, interest rates can vary from provider to provider, and there are a lot of factors that may influence the interest that you pay on a bridging loan. Before agreeing to any loan, it’s essential to comprehend the interest rates associated with potential lenders.
In this guide, we will provide you with a deeper insight into how bridging loan interest rates work and how to choose the right lender for your needs.
What Are Bridging Loan Interest Rates?
Bridging loan interest rates are usually higher than those of traditional loans and mortgages, with interest calculated monthly. At BFS our interest is calculated daily, which provides a saving if a loan is repaid 1 or 2 days into the month. At many lenders, the whole months interest will be charged, at BFS we only claim for the days interests taken. Deferred payment at the end of the term are also an option.
Because bridging loans are short-term financial solutions designed for quick access to funds. Their interest rates tend to be higher than standard mortgages because they are often deemed to be higher risk and short term. It is essential that clients have an exit strategy prior to commencement of the loan.
Monthly and Annual Bridging Loan Rates
Typically, bridging loan interest rates are presented and calculated monthly, although at BFS are interest rates are calculated daily, reflecting their short-term nature. However, you can defer or roll over your repayment until the end of the loan term, subject to circumstances.
If you do not wish to pay the interest monthly, you can defer payment and add the interest to the payment you are expected to pay at the end of the repayment term.
What Affects Bridging Loan Rates?
As stated, no set repayment rate encapsulates all bridging loans, and there are a lot of factors that may influence the interest rates and overall costs on bridging loans. Some of these include:
Loan-to-Value Ratio (LTV)
The Loan-to-Value (LTV) ratio indicates the percentage of a property’s value that a lender is willing to finance. For example, if a property is valued at £500,000 and you request a loan of £300,000, your LTV would be 60%.
A lower LTV usually means lower interest rates on your loan, as the investment carries a much lower risk. Because LTV tends to differ so much between bridging loan investments, it can be difficult to determine an average bridging loan interest rate based on this factor.
Credit History and Financial Profile
For obvious reasons, a borrower’s credit history and financial profile can significantly impact the bridging loan rates that they are eligible for. The interest rates that you receive for your loan really depend on how the lender views the risk, and bad credit could indicate that you are a higher risk, although bad credit does not preclude you from obtaining finance. Each case at BFS is reviewed fairly and many factors will be considered.
A weak credit history or a less robust financial profile may result in high rates or even complete denial of the loan; it is entirely up to the lender’s discretion.
Property Type and Location
Type of property and its location can have an impact on the interest rates that you can expect to pay on your bridging loan. If you are investing in or developing a residential property, these can often attract lower interest rates than for example a commercial investment.
Loan Term and Exit Strategy
Both the loan term and exit strategy significantly impact bridging loan rates. Those who agree to a short loan term and a clear and reliable exit strategy tend to have lower interest rates.
Lenders prefer certainty regarding when they will receive their repayment and require a solid plan. If they lack confidence in the exit strategy, lenders charge higher interest rates to safeguard their investment or may refuse to lend at all.
The Types of Bridging Loans
Bridging loans can be more diverse than you might think, with options available to fit any project type or scale. Each bridging loan has its own rules and conditions. At BFS, we can provide a range of loans to cover most needs, from property conversion finance to residential bridging loans.
Closed Bridging Loans
A closed bridging loan is a loan in which both parties clearly outline an exit strategy, detailing exactly when and how the borrower will repay the loan. At BFS, we commonly offer these loans to borrowers who have a guaranteed way to repay, such as those with an already agreed completion date on a property sale.
These loans tend to be a lower risk for lenders, allowing them to provide more attractive interest rates.
Open Bridging Loans
An open bridging loan is a short-term loan that has no fixed repayment date,designed to be repaid when the necessary funds become available. These loans are used when there is uncertainty around the repayment source, but it is expected that repayment is generated within a year.
Open Bridging loans tend to come with more risk, meaning that they tend to attract higher -interest rates.
First Charge Bridging Loans
A first-charge bridging loan is where the lender has a primary claim on the borrower’s property and will be repaid first if the borrower is forced to sell the property to cover debt.
These loans come with added security for the lender, making them a much more favourable option for any lender trying to avoid risky investments.
Second Charge Bridging Loans
Second charge bridging loans are short-term loans that are secured against a property that already has a mortgage or another form of loan charged to it.
This type of bridging loan tends to be less favourable amongst lenders, as it means that the loan sits behind the primary mortgage and in instances where the property may be sold to cover debt, the first charge will get repaid first.
This type of loan comes with a lot of risk and is avoided by lenders where possible.
Regulated Bridging Loans
Regulated bridging loans are overseen by the Financial Conduct Authority (FCA) when they are secured against a property that serves or will serve as the borrower’s primary residence or that of their immediate family.
Typically, regulated loans are not intended for commercial properties or developments; however, secured loans for these developments may be possible upon request.
Unregulated Bridging Loans
An unregulated bridging loan serves as a short-term financial solution tailored for property transactions that do not involve the borrower’s primary residence, including investment properties, buy-to-let situations, or commercial real estate transactions.
These loans fall outside the oversight of the Financial Conduct Authority (FCA), giving borrowers greater flexibility and quicker approvals, but they also lack some consumer protections available with regulated bridging loans.
Bridging Loan Rates in the UK 2025
Now that you know more about the types of bridging loans available, let’s explore their interest rates in 2025. A number of external factors, such as economic growth and inflation, can influence these rates, so it’s essential to stay informed.
As of right now, the average interest rate for bridging loans is 0.5 – 1.5%. This is across all loans, but it becomes more specific when you look at each loan type.
Interest Rates for Residential Bridging Loans
Because of the fast turnaround of these loans, you can typically expect a monthly interest rate of 0.5 – 2%, but this can vary depending on factors such as loan-to-value ratio (LTV), exit strategy and lender.
Interest Rates for Commercial Bridging Loans
Commercial bridging loans tend to have an interest rate ranging from 0.75% to 2% per month. Other factors can influence the interest rate, and lenders will consider the borrower’s creditworthiness before settling on a rate.
Auction Finance
Auction finance is used for those needing financial support to pay the balance of a property bought at auction.
Interest rates for auction finance generally range from 0.43% to 0.95% per month, yet they can vary widely based on the loan-to-value (LTV) ratio, property type, and the lender’s evaluation of risk.
Development Finance
Much like all finance options above, the interest rate is based entirely on the discretion of the lender. That being said, on average, development finance typically incurs monthly interest costs ranging from 0.85% and 1.5%.
How Interest Rates are Applied to Bridging Loans
You can either pay monthly interest fees on your loan or roll your interest fees over to the end of your loan date, meaning that you will have to pay the whole sum simultaneously.
The Different Interest Payment Structure
Not all loans are charged the same, and the way that interest is repaid can differ depending on the structure you choose.
Retained Interest
For retained interest, the total loan term is calculated in advance and subtracted from the initial loan amount. Consequently, the borrower is not required to make monthly interest payments.
Pros of Retained Interest
Retained interest is Ideal for borrowers with short-term cash flow issues during the term, such as developers awaiting a property sale or refinance and provides much more financial flexibility.
Because everything is calculated up front, this simplifies the repayment process.
Cons of Retained Interest
One of the most significant disadvantages of retained interest is that the interest is deducted upfront, which means you receive less cash than the total loan amount. Some lenders will charge the full terms interest, event if redemption is earlier than expected. At BFS we only charge for the days the finance is required, and any over payments will be returned to the client on redemption
Rolled-up Interest
Rolled-up interest on bridging loans refers to a repayment method in which interest accrues (or “rolls up”) throughout the loan’s term and is settled in total at the end, together with the principal. In contrast to retained interest, this approach doesn’t deduct interest at the beginning; rather, it accumulates monthly and increases the overall loan balance.
Pros of Rolled-up Interest
If you want the full loan amount immediately and do not want any deductions, rolled-up interest may be the best solution for you. If the project you are working on is not set to generate interest for a while, rolled-up interest loans allow you to focus on generating income before repaying the loan.
Cons of Rolled-up Interest
One of the biggest disadvantages of rolled-up interest is that you must repay the capital and the full rolled-up interest in one go, which can be a substantial sum of money.
If any issues occur that mean your exit strategy is delayed or fails, you may be subject to even further interest payments and struggle to make the repayment.
Monthly Interest
Monthly interest payments are one of the most common ways that people structure the repayment of their loans. With monthly interest, the borrower pays a fixed percentage of the loan amount each month as interest.
Pros of Monthly Interest
Monthly interest payments offer reassurance against unexpected charges that you may not be ready for. These repayments remain consistent, allowing borrowers to budget for their property and make repayments on time, ensuring they incur no further charges on their loan.
Cons of Monthly Interest
Life can be unpredictable, and though you may be fine to meet your payments one month, something could happen that prevents you from making your repayments the next month. If you miss your repayments, there could be onerous consequences, with additional interest charges being added to your overall loan.
Bridging Loan Fees and Hidden Costs to Consider
Like any loan, your bridging loan may have hidden costs that you should be aware of and prepared for. These hidden costs may include:
Arrangement Fees
Before entering into any agreement, it is crucial to understand the arrangement fee. This fee, typically expressed as a percentage of the total loan amount, is charged by the lender for loan setup.
This fee is often deducted from the loan amount and can be subject to negotiation on larger loans. Be sure to discuss how arrangement fees are handled with your lender before committing.
Exit Fees
Although this varies by lender, you may need to pay an exit fee, which is a charge imposed when you repay a loan at its term’s end.
Exit fees are often overlooked when calculating the total repayment fee, and so you should ensure that you discuss any potential exit fees with your lender.
Legal and Valuation Fees
Many people forget to consider legal and valuation fees. Lenders may need to evaluate the cost of your property and charge legal fees, which the borrower is expected to cover.
These tend to be upfront costs that must be paid regardless of whether the loan is completed, especially if a professional property valuation is considered mandatory.
Broker Fees
A broker fee is when someone finds and arranges a loan on your behalf.
Verify whether the broker earns a commission from the lender and fees from you, as this may double your expenses.
Early Repayment Charges
Though repaying your loan early may naturally feel like the right thing to do if you can, it is important to consider that you may be subject to additional fees if you repay early.
If you have an agreed-upon term of 6 months and you are able to pay the full loan amount within 3 months, you may still be eligible for the additional interest period. This differs depending on the loan provider, so it is important to discuss this with your lender.
How to Get the Best Bridging Loan Interest Rates
With anything in life, we all want to get the best possible deal, even when it comes to interest rates. The tips below may help you secure a great interest deal on your bridging loan.
Compare Multiple Lenders
The bridging loan market is very competitive, with rates differing widely among lenders. Avoid accepting the first offer; you can identify the best deal suited to your needs by comparing several lenders. Some lenders focus on specific property types or borrower profiles, which may affect the rates they provide.
Lower Your LTV
The lower your LTV, the less risk there is for the lender, which often results in more favourable interest rates. If you can decrease the amount you need to borrow in relation to the property’s value, you’re more likely to secure better rates. This could involve raising your deposit or utilising extra assets for security.
Show a Clear Exit Strategy
Bridging lenders seek assurance that you can repay the loan in a timely manner, and a clear, credible exit strategy provides that confidence. Whether you plan to sell the property, refinance with a long-term mortgage, or utilise proceeds from another transaction, showcasing a realistic and thoroughly considered exit path can enhance your risk profile.
Work with a Specialist Broker
A broker who specialises in bridging finance will have access to a wide network of lenders, including niche providers who may not advertise publicly.
They know the most competitive lenders based on loan types, property conditions, and borrower circumstances. Brokers frequently negotiate improved terms for you and navigate the process, ensuring you steer clear of hidden fees or ill-suited loan options.
Make It Happen With Bridging Finance Solutions
At Bridging Finance Solutions, we have helped countless borrowers bridge their financial gaps and fulfil their development plans. Interest rates are a standard part of the process, but we guarantee to provide our clients with complete transparency about costs, ensuring that none of you are caught off guard. It may be worth mentioning that what appears to be a low interest rate may not always be the best fit. Many considerations result in agreeing the most flexible and competitive loan terms. Speak with BFS who will guide you through the process.
Need support with a development? Looking to finance your first family home? Whatever the situation, our team is ready to provide you with the financial support you need.
Get in touch to find out how we can make it happen today, or fill out our application form.
(All figures and interest rates are correct at time of publishing)
