The monthly rate gets the attention, but on bridging loans, the fees and the exit have a big impact on what you actually pay. This guide walks through each cost you're likely to see on a term sheet. There's also a worked example to check against your own numbers.
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Bridging lenders price by the month because most loans run from a few months to two years. A rate of 0.70% a month sounds small, but over 12 months it adds up to 8.4% before any compounding. That's why the term you choose matters almost as much as the rate. If you repay early, you usually only pay interest for the months you've had the loan, so the sooner you repay, the lower the total cost. Most lenders charge a minimum of one month's interest, though some set a three-month minimum however quickly you exit.
Most bridging interest is rolled up, so you make no monthly payments. The lender adds it to the loan and you repay it all at the end. Some lenders retain the interest instead, taking the whole term's interest out of the advance on day one. A third option is serviced interest, where you pay monthly from income. It keeps the final balance lower, but you'll need to show the lender where that income comes from.
Retained interest is the one that catches people out. Suppose a lender retains £42,000 of interest on a £500,000 loan. The cash you receive on completion is then well below the headline figure on the offer, so always check the net advance.
Ask for an estimate of the valuation and legal costs before you instruct anyone. They're the costs you carry even if the loan never completes.
Suppose you need £600,000 for 12 months against a property worth £1,000,000. The rate is 0.70% a month, the arrangement fee is 2% and there's no exit fee. The lender adds the fee and the full term's interest to the loan, so the gross loan is higher than the cash you receive.
Simplified to show how the costs build up. Some lenders compound interest monthly, and valuation and legal costs come on top. Illustrative only and subject to valuation and lender criteria.
Notice the last line. Lenders set their maximum loan to value on the gross loan, so the fee and the interest count towards the limit, not just the cash you receive.
Run your own numbers
Our bridging loan calculator works out the net advance, total interest and loan to value for your deal. Switch between retained, rolled-up and monthly interest, then change the rate, term and fees to see what moves the total.
Try the bridging calculatorEvery bridging lender asks the same question first: how will you repay? The usual answer is a sale, or a refinance onto a buy-to-let or commercial mortgage. Lenders want evidence that the exit can happen within the term. For a sale, expect to show an agent's valuation and marketing plan; for a refinance, an agreement in principle.
If the exit slips, the costs change. Most loan offers set a default rate that starts if the term ends before you repay, and it's normally well above the standard rate. Extensions are sometimes possible, but they come with a fee and usually a fresh valuation.
So build in some slack when you choose the term. Most lenders let you repay early once a minimum interest period has passed. A longer term usually costs little if you finish ahead of plan, while overrunning a short one costs far more.
If you or a family member will live in the property, the loan is regulated by the FCA and different rules apply. Capito arranges unregulated bridging for property investors, developers and businesses. If your case is regulated, tell us at the start and we'll pass it to a firm that can help.
Monthly interest typically runs from 0.64% to 1.2%, plus an arrangement fee of around 2% of the loan. Valuation and legal costs come on top, and some lenders charge an exit fee of up to 1%.
Usually, yes. You normally only pay interest for the months you've had the loan. Most lenders charge a minimum of one month's interest, and some set a three-month minimum.
The net loan is the cash you receive. The gross loan adds the arrangement fee and any retained or rolled-up interest; it's the figure you repay and the one lenders use for loan to value.
Default interest usually starts once the term ends, and it's well above the standard rate. Some lenders agree an extension for a fee and a fresh valuation, so talk to them early.
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Capito is a broker, not a lender. This guide is general information, not advice on your circumstances.
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