Bridging Loan Interest Rates Explained | From 0.53%

Bridging loan interest rates are currently available from 0.53% per month, but can reach as high as 0.78% per month and above for higher loan-to-value loans and more complex scenarios.

For anyone considering short-term property finance, whether you're buying before you sell, downsizing, funding an auction purchase, or refurbishing a property, the rate you secure has a direct impact on the total cost of borrowing.

The loan-to-value ratio is the main driving factor of the rate you're eligible for. Lenders use this to calculate how much you're borrowing as a percentage of the property value used as security. For example, if you want to borrow £100k against a property valued at £200k, you would achieve a loan-to-value ratio of 50%.

If that property has an existing mortgage or other finance secured against it, this would impact the loan-to-value calculation.

However, other factors such as the property type, location, and your exit strategy will all play a part in determining the interest rate you receive.

This guide will explain how bridging loan interest rates are calculated and repaid, including roll-up options and early repayment conditions.

At Clifton Private Finance, we are a bridging loan brokerage and have access to the best rates on the market, regardless of whether you're buying before you sell, downsizing, or completing a fix and flip project. 

To get an indicative estimate on the interest rate you may qualify for, use our free bridging loan calculator below. You will get a full projection of the interest and associated costs to help you understand the total cost of borrowing with a bridging loan.

Table of Contents

Typical Bridging Loan Interest Rates

Bridging loan interest rates currently range between 0.53% and 2% per month, depending on your individual circumstances.

The exact rate you get will depend on:

• The type of property you're buying
• Your exit strategy (e.g., refinancing to a mortgage or selling an existing property)
• How quickly you need finance arranged
• Whether you're completing development works
• Your loan-to-value (LTV)
• The lender you use

How Do Bridging Loan Interest Rates Work?

Fundamentally, bridging loan interest rates work in a similar manner to traditional borrowing, as you see with a standard mortgage.

The main differences are that:

• Bridging loan interest rates are typically quoted monthly, while mortgage interest rates are typically quoted annually. These headline interest rates do not, on their own, show the full total of borrowing.
• Bridging interest can be rolled up into the value of the loan to avoid paying the interest each month. Instead, it is paid at the end of the term as part of the full loan repayment.
• There are typically no ERCs with bridging loans, meaning the quicker you repay, the less interest you'll pay. However, this is dependent on lender-specific terms.

For example, if you take out a 12-month bridging loan but repay it after 6 months, you'll only pay 6 months of interest. However some lenders may include a minimum interest term.

Bear this in mind when looking at bridging loan quotes because they can be a lot cheaper when you factor this in.

Some lenders will even calculate your interest on a daily basis – so, if you repay your loan halfway through a month, you’ll only pay for the days in the month that you’ve had your loan outstanding.

What Is the Difference Between an Interest Rate and APR/APRC?

The interest rate determines the interest charged on your borrowing. APR (Annual Percentage Rate) and APRC (Annual Percentage Rate of Charge) are annual measures of borrowing costs that include interest and relevant fees, calculated using prescribed assumptions. Mortgage illustrations use APRC to show the annualised cost over the mortgage’s assumed lifetime.

Simply multiplying a monthly bridging rate by 12, or calculating its compounded annual equivalent, does not produce an accurate APR or APRC because fees and other calculation requirements are not included. When comparing bridging loans, consider the total interest and fees over your expected borrowing period, alongside any minimum-interest or early-repayment conditions.

How Are Bridging Loan Interest Rates Calculated?

Bridging loan interest rates are quoted on a monthly basis, not annually, like your mortgage is.

The calculations are generally based on:

• The total amount you’re borrowing
• Your LTV (Loan-to-Value)
• How much deposit/security you can put down
• The length of your loan terms

Rates can vary depending on your credit history, including adverse credit, and the strength of your exit strategy, as a clear repayment plan can lower perceived risk and reduce the rate offered.

As well as several other factors based on a risk assessment set out by your lender. Lenders may view lower-LTV cases with stronger security as less risk and offer better loan rates accordingly. The rates quoted for a straightforward 'buying before selling' scenario may be more favourable than you would see for a complex development bridging loan, for example.

Case study: Our case study below details how we secured a £500k bridging loan for a London property despite adverse credit

How Is Interest Repaid on a Bridging Loan?

How you repay the interest on your bridging loan will depend on the terms and conditions arranged with your lender.

With bridging loans, borrowers have a couple of options that differ from traditional mortgages, which can typically only be repaid monthly.

Generally, there are three common methods of repaying interest on a bridging loan:

• Rolled-up interest: Instead of paying interest each month, you repay it alongside the capital when the loan is redeemed. Depending on the lender’s calculation method, interest may be added to the outstanding balance and itself attract further interest. This avoids monthly interest payments, but increases the amount you need to repay at the end.
• Retained interest: The lender sets aside an amount from the loan at the outset to cover interest for an agreed period. This reduces the net funds available to you from the total loan facility, but means you do not make monthly interest payments during the period covered. You still need to repay the outstanding loan balance and any applicable charges when the loan ends. If you repay early, unused retained interest may be refunded or credited against your redemption balance, depending on the lender’s terms and any minimum-interest requirement. If the loan continues beyond the period covered, further interest will be payable.
• Serviced interest: You pay the interest each month from your own funds, while the capital remains outstanding until the loan is redeemed. These payments do not reduce the amount borrowed. The lender will usually assess whether you can afford the monthly payments.

Typically, if you have the means to do so, you can repay interest and your total loan amount before the end of your loan term.

Bridging loans are designed as a short-term finance product, so you may not face any early repayment charges if you pay your bridging loan before your term ends. However, it's important to note that this depends on whether your specific lender includes a minimum-interest period, uses daily vs. monthly charging, or has any other lender-specific terms related to early repayment.

For example, some lenders will permit early repayment without an early repayment charge, but will require at least the first month’s interest is paid.

At Clifton Private Finance, one of our expert bridging loan brokers will help you to understand the full terms of your loan, including the early repayment options.

Expert Insight

“A lower monthly interest rate doesn’t always mean a cheaper bridging loan. A product with a lower rate could have a higher arrangement fee or a minimum-interest period that makes it more expensive if you repay early. For example, if you expect to repay after two months, a loan charging at least three months’ interest could cost more than one with a slightly higher rate that charges only for the time you borrow. We compare the total cost over your expected borrowing period, including fees and repayment conditions, rather than choosing on the headline rate alone.”

Fergus Allen Head of Bridging at Clifton Private Finance

Are Bridging Loan Interest Rates Higher Than Mortgage Rates?

Yes, for the most part, interest rates on bridging loans are higher than mortgage rates. This is mainly because bridging loans span a much shorter period than mortgages.

Bridging loans are designed to bridge financial gaps, such as when you’re looking to purchase a property before acquiring the funds from selling your previous home or any other cash windfall.

That said, interest rates and fees associated with a bridge loan can vary significantly depending on the lender and the borrower's financial circumstances.

To compare costs fairly, look at the same borrowing amount over the period you expect to need the finance. Include interest, arrangement fees, legal and valuation costs, and any applicable early repayment charges or minimum-interest requirements.

If you plan to repay the bridge by refinancing onto a mortgage, include the costs of arranging that mortgage too. Bridging finance can be useful when timing or a property’s condition makes a standard mortgage unsuitable, but a short borrowing period does not automatically make it the cheaper option.

Those looking to secure a bridge loan should always take care when comparing interest rates offered by various lenders and look at the terms of a loan carefully. It’s also important to consider the overall cost of your bridging loan and not just the interest rate.

How Long Do You Pay Bridging Loan Interest For?

You usually have the option to only pay interest on your bridging loan for the months in which your loan is taken out.

If you are able to fully repay the loan amount early, you will not have to pay interest for the time period you didn’t use the loan.

Drawdown options:

Some bridging lenders also offer drawdown options, meaning a bridge loan can be drawn down in stages over the course of the term.

You’ll only pay interest on the amount you’ve drawn down at each stage, which can be incredibly valuable for property renovations or development projects.

For example, if you need a development bridging loan of £1m for your project, you won’t be able to spend and utilise that full £1m from day one – you’re going to spend it in stages throughout the completion of your project.

So, a drawdown facility means you can take your agreed loan in stages – perhaps £300k upfront, £200k 3 months later, and the final £500k as and when you need it.

A good bridging loan broker will be able to negotiate the flexibility you need for your project.

Case study: Our case study below details how we secured a £1.7m bridging loan with drawdown flexibility to fund classic car purchases.

Are Interest Rates Fixed or Variable?

Typically, bridge loan interest rates are fixed and set by the lenders and determined by the factors previously mentioned.

They are also affected by interest rate fluctuations in the market, with bridging loan rates influenced by movements in England's base rate. However, most lenders do not track those changes as directly as standard mortgage products because bridging is priced more individually.

A fixed interest rate means that the interest being paid will remain the same throughout the entire period of the loan and is not subject to the shifts in interest rates in the UK.

Fixed interest rates offer a certain amount of stability and predictability when it comes to knowing exactly what amount you will be paying monthly or paying at the end of your term in a rolled-up sum.

Related: Get the latest on UK interest rates in our news piece 'Are interest rates going down?'

What Are Some of The Other Costs Involved in Bridging Finance?

In addition to interest payments, there are a number of other costs associated with bridge finance that it’s important to be aware of.

The bridging loan with the cheapest interest rate isn’t necessarily the cheapest overall.

This is where the expertise of a good broker comes in.

You also need to factor in:

• Arrangement fees: charged by lenders for facilitating the bridge, which are typically a fixed fee or a percentage of the loan amount
• Valuation fees: all property used as security for a loan must be evaluated by the lender to determine its worth and suitability
• Legal fees
• Broker fees: these should be included when comparing the overall cost of borrowing
• Exit fees: check whether these apply when you repay the loan, along with any penalty fees
• Other administrative fees

For a comprehensive guide to bridging loan costs and what to look out for, read our separate guide to bridging loan costs.

How to Find the Best Bridging Loan Interest Rates

Preparation and an understanding of your own circumstances and requirements are essential when looking to find the best deal, not just the best available rates, from the many lenders out there.

Interest rates vary greatly, and the majority of private lenders are often specialised to deal in certain areas of property finance – whether that’s property development or residential bridge loans for purchasing a home.

Rates can also vary based on lender appetite, the type of property purchase, and whether the loan is for a new property acquisition or a more complex case.

When it comes to bridging finance, there are an overwhelming number of options to choose from and to investigate.

They’re not all listed on the few comparison sites that operate in the market, and when you factor in the complexities of each case, the quotes can often vary greatly between lenders.

We highly recommend using an independent bridging loan broker to help you find the most suitable option. As an expert in the field, with deep lender knowledge, a broker will provide you with the best rates from appropriate lenders according to your scenario.

The goal is not simply to achieve the lowest interest rate on paper, but to find the most suitable overall structure.

Speak to One of Our Bridging Loan Experts

Here at Clifton Private Finance, we can help guide you through your available options, whether you're new to bridging loans or are more experienced with using this type of financing.

Due to the overall cost of a bridge loan, when making any important financial decision, it’s good to seek the help of a bridging loan expert to ensure you’re getting finance at an affordable and favourable rate.

Call us today on 0117 959 5094 to see how we can help, or book a consultation with us below.

You can also use our free online bridging calculator to compare indicative costs before speaking to a broker.

Bridging Loan Interest Rate FAQs

What Factors Affect Bridging Loan Interest Rates?

The loan term, property type, loan amount, LTV, and creditworthiness of the borrower are all factors that can impact an individual bridge loan’s interest rate – but this isn’t an exhaustive list.

A borrower’s credit history can affect pricing, and adverse credit may lead to higher rates, though borrowing can still be possible depending on the case. Lenders also commonly use open market value when assessing loan to value, and the figure adopted can affect the rate offered.

What Happens if I Can’t Make Interest Payments on a Bridging Loan?

If you cannot repay your loan within the terms, your lender may apply certain penalties, such as late payment fees, default interest rates, or legal repercussions.

If you can’t afford to repay the capital of your loan, your lender could repossess the property to recover your debt. This is why it’s important to have a solid exit plan – speak to a bridging adviser if you’re unsure on your plan.

There could also be an impact on your credit score.

Can I Get a Bridging Loan with a Low Interest Rate?

Interest rates differ from lender to lender and depend on your circumstances. Lower pricing is more likely in lower-risk cases, for example where the lender sees less risk because of stronger security or a lower LTV, but typically rates will still be higher than those of traditional borrowing because the repayment period is much shorter.

The better you meet the bridging loan criteria of your specific lender, the lower your interest rate is likely to be.

Seeking advice from a whole of market broker like Clifton Private Finance and shopping around for the best options can result in finding a favourable deal.