How Much Does a Bridging Loan Cost?

Key Takeaways

• Bridging Loan costs include interest (typically 0.68% to 1% per month), facility fees (1.5% to 2%), and other fees such as valuations and legal costs.
• Costs mainly vary based on your loan-to-value (LTV) ratio.
• Bridging loans often allow rolled-up interest payments, easing cash flow pressures.
• And you generally stop paying interest the day you repay, with no early repayment charges.

Understanding the Costs of Bridging Loans

Below, we explore the various costs associated with bridging loans, how they are calculated, and what to consider when budgeting for one.

However, before that, a great way to get an indication of costs is to use a bridging finance calculator, such as ours below. If you know roughly what you’re looking to do; e.g., your purchase price and property values, you can get a rough illustration of what the costs will look like and play around with he figures.

Main Components of Bridging Loan Costs

1. Monthly Interest Rates

Bridging loan interest is charged monthly, typically between 0.68% and 1% of the loan amount.

For instance:

• A £200,000 loan at 0.75% per month would cost £1,500 in monthly interest for the first month.

Key points:

• Rolled-up interest: Most borrowers choose to defer interest payments until the loan is repaid, freeing up cash flow.
• Variable rates: Interest rates depend on your loan-to-value (LTV) ratio, property type, and lender’s assessment.

2. Facility Fees

Most lenders charge a facility fee of 1.5% to 2% of the loan amount. This fee covers the arrangement and setup of the loan.

Example:

• A £200,000 loan with a 2% facility fee would incur a £4,000 charge.

3. Valuation Fees

Lenders require a professional valuation of the property or properties involved. This ensures the loan is adequately secured.

• Costs typically range from £500 to £1,500, depending on the property’s value.
• Some lenders offer desk-based valuations, which can be quicker and cheaper, but these are generally limited to lower-value properties.

4. Legal Fees

Both you and the lender must engage solicitors. You are responsible for covering the lender’s legal costs, which vary but average £1,000 to £1,500 for a typical transaction.

5. Redemption Fees

Once the loan is repaid, most lenders charge a small redemption fee to remove the legal charge on your property. This is usually around £100 to £150.

Additional Costs to Consider

Broker Fees

Some brokers charge upfront fees for their services, typically between £495 and £995. However, Bridging Finance does not charge broker fees, helping you save money.

Exit Fees

Certain lenders impose exit fees if you repay the loan early. At Bridging Finance, we avoid recommending lenders who charge exit fees, ensuring you maintain flexibility.

How Loan-to-Value Affects Costs

The loan-to-value ratio (LTV) significantly impacts the cost of a bridging loan.

• LTV is the ratio of your loan amount to the total value of the property (or properties) used as security.
• Lower LTVs (e.g., 50%-60%) attract lower interest rates.
• Higher LTVs (up to 80%) increase lender risk, resulting in higher interest rates.

Example:

• Borrowing £100,000 against a £200,000 property results in a 50% LTV, typically yielding better rates than borrowing £150,000 (75% LTV).

Tips for Minimising Bridging Loan Costs

1. Work with a Broker: Brokers can help you find competitive rates and avoid unnecessary fees.
2. Opt for Joint Legal Representation: Sharing a solicitor with the lender can reduce legal costs.
3. Choose No-Exit-Fee Products: Avoid lenders who charge exit fees to retain flexibility.
4. Repay Early: Most bridging loans don’t have early repayment charges, so repaying sooner reduces interest costs.
5. Use a Bridging Finance Calculator: Estimate costs upfront to ensure affordability.

Is a Bridging Loan Worth It?

Bridging loans are invaluable for those needing quick and flexible financing. However, their costs require careful consideration. The key is to weigh the benefits of securing your property transaction against the financial outlay.

For tailored advice and support, consult a trusted bridging finance broker like Bridging Finance. With expertise in navigating the market, we’ll help you find the most cost-effective solution for your needs.

Frequently Asked Questions

Do you pay bridging loan costs monthly?
No, most borrowers roll up interest payments and repay the total amount, including interest, at the end of the loan term.

How quickly can I get a bridging loan?
Funds can be released in as little as 72 hours, but the average timeframe is 3-6 weeks.

What happens if I can’t repay my bridging loan?
Failure to repay could result in property repossession. Always have a solid exit strategy in place.

Do I need a salary to qualify?
No, bridging loans are secured against property, so your income is less relevant. Lenders focus on your exit strategy.