Mortgage guide
Serviced Interest
Underwriting is enhanced for this interest repayment type. The borrower must have a reliable source of income or cash flow to cover these regular interest payments. This method is suitable for borrowers who have good disposable income or other financial resources.
- Published
- 30 Mar 2026
- Last reviewed
- 11 Sep 2026
- Reading time
- 3 min
Serviced Interest
Underwriting is enhanced for this interest repayment type. The borrower must have a reliable source of income or cash flow to cover these regular interest payments. This method is suitable for borrowers who have good disposable income or other financial resources.
Since the interest is being paid regularly, it does not accumulate or add to the principal amount of the loan. At the end of the loan term, the borrower only needs to repay the principal amount.
Servicing the interest can be more cost-effective in the long run, as it prevents interest from compounding and increasing the overall amount to be repaid.
Deducted Interest
Deducted interest is where the total interest for the entire loan term is calculated upfront and deducted from the loan amount at the outset.
When the loan is initially drawn, the lender deducts the total interest amount for the entire loan term from the principal. For example, if you take out a loan of £100,000 and the total interest for the loan term is £20,000, you would receive £80,000 upfront, but you would still owe £100,000
The borrower does not make regular interest payments during the loan term. This can be beneficial for those who do not have good disposable income or prefer not to manage monthly payments.
At the end of the bridging loan term, the borrower repays the principal amount of the loan with a refund of any months not used. Using the previous example, the borrower would repay the original £100,000 if they remained on the term for 12 months.
This method provides greater flexibility for borrowers who need to manage their cash flow carefully and might not have the means to make regular interest payments.
Bridging calculator
Estimate the gross loan against property value before interest, fees and retained amounts.
Bridging Loan Criteria
These wider product criteria provide context for this guide. The lender will assess your individual case.
| Criteria | Detail |
|---|---|
| Borrowers | Personal, limited company (Ltd co), LLP and offshore trusts, depending on the lender |
| Repayment type | Interest only or repayment |
| Term | Short term. The maximum term varies by lender; in our experience the minimum term is usually 1 month, and 3 months with some lenders |
| Experience | Not always required; it depends on the lender and the exit |
| Max applicants | Varies by lender |
| Valuation types | Automated valuation (AVM), Market Value 1 (MV1) yield based, market value (MV), 180-day or 90-day value, depending on the lender and how it labels the valuation basis |
| Regulated and unregulated | Yes, both: regulated where the borrower or a close family member lives, or will live, in the property |
| Credit searched | Usually, depending on the lender |
| Credit scored | Varies by lender; the decision rests mainly on the property and the exit |
Published indicative terms for the wider product category are shown for context. They are not a quote for the specific circumstances discussed in this guide.
| Loan to value | Rate |
|---|---|
| 65% LTV | 0.62% per month (2% lender fee) |
| 75% LTV | 0.72% per month (2% lender fee) |
| 85% LTV | 0.9% per month (2% lender fee) |
Related case studies
Frequently asked questions
What is serviced interest on a bridging loan?
Serviced interest is paid monthly, like a mortgage, so it is not deducted from the loan. It maximises the net advance but requires income to meet the payments throughout the term.
Are interest rates higher on a serviced accommodation mortgage?
Serviced accommodation mortgage interest rates can be higher than standard buy-to-let rates, reflecting the perceived risk of short-term rental income. The rate varies by lender and by borrower profile.
What are serviced payments on bridging loans?
Serviced payments involve making regular interest payments throughout the loan term. This helps manage cash flow by spreading out the interest costs over time.
How is interest repaid on a bridging loan?
There are typically two methods for repaying interest on a bridging loan:
Serviced Interest:
- Borrowers pay interest monthly, similar to a mortgage but calculated monthly.
- Ideal for those with a regular income who prefer to manage cash flow through ongoing payments.
- Ensures the principal remains constant but requires consistent cash flow for monthly payments.
Deducted (Retained) Interest:
- Interest for the entire loan term is calculated and deducted upfront from the loan amount.
- Suitable for borrowers without regular income during the loan term, such as property developers.
- No monthly payments are needed, but the borrower receives less initial cash.
Choosing between these options depends on the borrower’s financial situation and strategy, making it essential to understand which aligns best with their needs.
What is retained interest on a bridging loan?
Retained interest is interest for the whole term calculated at the start and deducted from the gross loan, so there are no monthly payments. It reduces the net advance, and any unused interest may be refunded on early repayment, depending on the lender.
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