What Are the Costs Associated With Bridging Loans

Bridging Loans are useful in situations where you need money, fast. Perhaps you are in a situation where you are purchasing an Auction Property and need to complete it in 28 days or you need a short-term loan to develop the property and sell it.

It's important to understand all the costs involved before committing to a bridge loan. This article explains the associated costs and how we can assist in sourcing the best deal for you.

Accelerated Finance specialises in Bridging Loans. We have arranged loans for our clients within 10 days of application.

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How Much Does A Bridge Loan Cost?

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How A Bridging Loan Works When Buying A House?

How Much Does A Bridge Loan Cost?

The interest rate and the term of the loan are the two most important contributing factors when looking at this type of finance. A third important factor would be the use of the loan whether it is for an acquisition, to buy land or for commercial purposes.

The term can be short as 3 months, although it is possible to extend this to 24 or even 36 months. Bridging Loans come with retained interest, so the longer you borrow, the more you'll pay overall.

Interest is not the only consideration when taking out a Bridging Loan. Have a look below at the other costs involved. Try out our Calculator to get a better understanding of what the net loan will be after costs.

Arrangement Fee

Generally, lenders have a facility fee between 1.5-3% of the gross loan amount but in most cases, it's 2%. So if you borrowed £200,000, the product fee will be £4,000.

Valuation Fees

Bridging Loan Lenders will want to inspect the property to see if it's in good condition in case they need to repossess and sell.

The pricing of a valuation generally depends on the price of the property but usually is around £300 to £1000.

Legal Fees

As well as your own solicitor costs, bridging loan lenders will pass on their own legal fees to you related to organising your loan.

Broker Fees

Whilst you can approach a lender directly, Bridging loans work can come with more complex paperwork and it is advisable to work with a Broker who can help source and negotiate the right deal on your behalf.

The fee will either be a percentage of the amount you borrow i.e between 0.5 to 2% or a flat fee.

It is better to avoid brokers who charge higher upfront fees, but instead work on a success only basis meaning you pay if you only successfully organise the loan.

Accelerated Finance is a fee free broker, we only get paid from the lender once the finance is complete. You can get started here by completing our simple form. We will then get in touch to arrange an introductory call.

Loan Drawdown Fees

Also known as an admin or assessment fee, usually is around £295-£395, but can vary depending on the number of properties.

Redemption Fee

A redemption fee is when your loan is repaid and covers the remove the legal charge of the property and is around £120

Exit Fees

There are lenders who charge an exit fee between 1-2% but at Accelerated Finance we generally avoid working with lenders who charge exit fees

Telegraphic Transfer Fee

Yet another administrative fee, but this covers the bank charges involved in transferring the funds from the lender to your conveyancing solicitor. This is around £25

What Is The Interest You Will Pay?

Interest rates on bridging loans start from 0.39% per month and can go up to as high as 1.5%.

This makes interest rates a lot more expensive in comparison to a typical mortgage which is between 1-3% generally, however this is expected to increase with the bank rate now projected to be further increased

Let's walkthrough a Loan Illustration

The above example shows a purchase Bridge Example. Here is a clear breakdown of the monthly and annual interest rate charge.

The interest rate is generally taken as a retained ( rolled up) and you pay this back at the end of the term. However there are options where you can opt for serviced interest and pay monthly.

Other immediate costs are the arrangement fee and admin fee which is generally deducted from the gross loan. Read further on how a bridging loan works when buying a house