Head of Content
Head of Bridging and Commercial
If you are considering a bridging loan, it’s important to research the costs first. Here you can learn how much this type of finance is likely to set you back, read up on the hidden fees, and find out how we can save you money.
How much does bridging finance cost?
The answer to this question depends on the amount you are borrowing, the interest charges and the term length. These are the factors that will determine the repayments on your bridging loan, but this type of finance comes with other costs and fees to factor in too.
Interest can be paid in several different ways on a bridging loan, but monthly is the most common, which works in the same way as an interest-only mortgage, in the sense that you are only required to pay the interest each month and settle the debt at the end of the term.
With this in mind, if you were to take out a £100,000 bridging loan over a 12-month term with a 1% interest rate, your repayments would cost £1,000 per month.
Although this is a representative example calculation, there will be fees too, and countless variables that can drive the cost up or down. Read on to learn more...
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How the interest charges affect the cost
There are several ways that the interest charges will affect the overall cost of your bridging loan. Firstly, there is the rate that you qualify for. Bridging finance lenders determine what rate borrowers qualify for on a case-by-case basis, based on the strength of the investment.
To qualify for the lowest interest rates, you will need:
- A low loan-to-value ratio: The best rates tend to begin at 60% LTV.
- A strong exit strategy: The more likely your exit strategy is to pay out, the better your chances of securing a favourable interest rate on your bridging loan.
- Credit history: Although bad credit isn’t always a deal-breaker with bridging finance, having clean credit can increase your chances of landing a low interest rate.
Monthly interest payments
The table below shows how the rate you qualify for will affect the repayments on a £100,000 bridging loan, with an example term length of 12 months and monthly interest payments.
|
Loan Amount |
Interest Rate |
Monthly Payment |
Total Interest |
|
£100k |
0.5% |
£500 |
£6,000 |
|
£100k |
0.75% |
£750 |
£9,000 |
|
£100k |
1% |
£1,000 |
£12,000 |
|
£100k |
1.25% |
£1,250 |
£15,000 |
|
£100k |
1.5% |
£1,500 |
£18,000 |
|
£100k |
1.75% |
£1,750 |
£21,000 |
|
£100k |
2% |
£2,000 |
£24,000 |
Other ways interest can be charged
Interest isn’t always charged monthly on bridging loans, and if you choose one of the alternatives, the cost of your repayments could be very different.
Rolled up interest
The table below shows what the repayments on a £100,000 bridging loan would look like if you were to choose rolled up interest payments, rather than monthly. These calculations are based on a loan with a 1% interest rate taken out over a six-month term.
|
Month |
Interest Due |
Gross Loan Amount |
|
1 |
£1,000 |
£101,000 |
|
2 |
£1,010 |
£102,010 |
|
3 |
£1,020 |
£103,030 |
|
4 |
£1,030 |
£104,060 |
|
5 |
£1,041 |
£105,101 |
|
6 |
£1,051 |
£106,152 |
Notice how the monthly interest and gross loan amount increases with rolled up interest? This is because the monthly interest is compounded and payable at the end.
Retained interest
There is a potential middle ground if neither monthly or rolled up interest fits your needs. With the ‘retained’ interest option, you ‘borrow’ the interest as well as the loan amount, and the grand total is calculated at the start of the agreement and payable at the end.
The table below shows how this works for various different bridging loan sizes, taken out over a term length of six months with an example interest rate of 1%.
|
Loan Amount |
Interest Charged |
Total Gross Amount |
|
£100k |
£6,383 |
£106,383 |
|
£150k |
£9,574 |
£159,574 |
|
£200k |
£12,766 |
£212,766 |
|
£250k |
£15,957 |
£265,957 |
|
£300k |
£19,149 |
£319,149 |
How term lengths affect repayments
Term lengths do not affect the cost of bridging in the same way they would a repayment mortgage, as stretching the debt over a longer period does not mean smaller repayments.
As bridging loans are offered on an interest-only basis, your repayments will be consistent each month if you choose the monthly interest option and will increase with rolled up or retained. Either way, a longer term length obviously means paying more in interest.
Other costs and fees
As well as your repayments, bridging loans come with several other costs and fees that you will need to factor into your budget. The most significant additional charges are as follows:
- Arrangement fees: Charged by the lender for arranging the bridging loan. Arrangement fees are typically billed at 2% of the loan amount.
- Drawdown fees: Payable when you are accessing your bridging finance funds and usually charged at around £300 or more.
- Redemption & exit fees: A redemption fee is payable to remove the legal charge the lender placed on your property when you applied for the loan, billed at around £100-150. On top of this, some lenders charge exit fees of 1-2% of the loan amount.
- Surveys & legal costs: Just like with a mortgage, bridging loans require surveys and legal due diligence, and this can add to the overall cost. Survey costs can vary depending on the size of the property and the complexity of the assessment. Legal fees can run into thousands, in some cases, but some bridging lenders offer deals with them included.
- Telegraphic transfer fee: A small admin cost of around £25 to cover the transfer of the funds when your bridging loan agreement pays out.
Unsure whether a bridging loan is for you? Read about their pros and cons here.
How we can help reduce your costs
Seeking independent advice from a broker who specialises in bridging loans is recommended before you apply for this type of finance. With all of the fees factored in, bridging can be expensive, but the good news is that brokers can help you save money.
At Teito, we have advisers on our books who are experts in bridging, and they can help you make savings in several ways. Firstly, they have the knowledge, experience and lender contacts to help you ensure the best outcome and secure the lowest rate available.
This will potentially mean lower repayments, but our bridging brokers can also help you avoid paying unnecessary fees and find the most cost-effective deal for you.
Get started on your bridging finance journey
Now that you have a clearer understanding of the costs involved, you can get started on your bridging finance journey by speaking to one of our advisers. They specialise in bridging loans, can offer bespoke advice on it and help you begin your application the right way.
Here are just some of the reasons customers choose us for their bridging finance needs:
- We can access to every bridging finance provider on the market
- Our brokers can often secure exclusive rates and deals
- We are 5-star rated on leading review websites
- Your first consultation will be free
Ready to take advantage of a free, no-obligation chat with a broker who specialises in bridging finance? Fill out our quick form to get started today.
FAQs
Most are not payable upfront, with the exception of valuation and solicitors fees. Some lenders will even let you add them to the loan amount if that is a better fit for you, but keep in mind that this will mean paying interest on them during the loan term.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.