Bridging Loans: How Much Can I Borrow?

How much you can borrow depends on the lender's maximum loan-to-value for the property type, the amount your exit can repay, and the fees and interest deducted up front. Residential property supports the highest loan-to-values; commercial property and land support less.

Bridging loan-to-values depend on the security: residential property on a first charge supports the highest, second charges and commercial property lower, and land lower again. The maximum is applied to the gross loan, including fees and retained interest.

Bridging loan-to-value is usually measured on the gross loan, which includes the arrangement fee and any retained interest. The net advance you receive is therefore a lower percentage of the property's value than the headline loan-to-value.

You can borrow against land, but lenders offer lower loan-to-values than on buildings, and lower again without planning permission, because land value is less certain and harder to sell. Land with planning is usually bridged as a step towards development finance.

Commercial and semi-commercial property can secure a bridging loan at loan-to-values lower than residential, reflecting the property's liquidity and the tenant or trading position. The exit is usually a commercial mortgage or sale.

Bridging lenders use the lender's valuation, and on a purchase many use the lower of the price and the valuation. Some lend against a valuation above a discounted purchase price, such as at auction, which can increase the loan.

The gross loan is the total debt on day one, including the arrangement fee and any retained interest; the net loan is the cash you actually receive after those deductions. Comparing lenders on net advance shows what you can really fund.

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.

Rolled-up interest is added to the loan each month rather than deducted at the start or paid monthly, so the net advance is higher but the debt grows over the term. The full amount is repaid on exit.

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.

The arrangement fee and any retained interest are usually deducted from the gross loan. Valuation, legal and broker fees are often paid separately, and some lenders charge an exit fee on repayment, which adds to the redemption figure.

Many lenders accept a second charge on another property you own as additional security, increasing the combined value and so the gross loan. It puts that property at risk too, so the exit must be secure.

A bridge can sometimes fund 100% of a purchase price with additional security, or on a discounted purchase where the lender accepts a higher market valuation. The total debt must still fit the lender’s loan-to-value limits, and fees or retained interest can leave a cash contribution to pay.

Some bridging lenders fund refurbishment in stages after completion, released against inspections, with the total loan capped by a percentage of the value after works. Light refurbishment bridges suit cosmetic work; heavier works suit development finance.

Some lenders lend against the expected value after works, capping the total loan at a percentage of that value while limiting the day-one advance to a percentage of the current value. A monitoring surveyor confirms progress before each release.

The exit caps the loan: a lender will not lend more than a refinance or sale can repay, including rolled-up interest and fees. A refinance is tested against the term lender's loan-to-value and rental or income test.

Paying interest monthly — servicing it — means it is not deducted from the loan, so more of the gross loan reaches you as net advance. You need income to cover the monthly payments throughout the term.

For unregulated bridging, income matters mainly for serviced interest and for the exit, such as a buy to let or residential remortgage. For regulated bridging on your home, the lender must be satisfied with your repayment strategy.

Minimum bridging loans vary by lender, from relatively small amounts to larger minimums at specialist lenders, and fixed costs such as valuation and legal fees make very small bridges expensive relative to the amount borrowed.

Larger bridging loans are available from specialist and private lenders, often into the millions, with larger loans assessed individually on the security, the borrower's experience and the exit. Maximums vary by lender.