A bridging loan costs more than a mortgage and less than most people fear. On typical specialist market terms, borrowing £300,000 in cash against a £500,000 property for twelve months comes to roughly £46,000 in total — about 15% of the amount advanced, spread across interest, two arrangement fees and third-party costs.
The headline monthly rate accounts for a little over two-thirds of that. The rest is fees, and fees are where quotes become hard to compare.
The four costs in every bridging loan
1. Interest. Quoted as a monthly rate, not an annual one. Typically somewhere between 0.6% and 1.2% a month depending on the loan to value, the property type and the borrower. Priced in bands, so a small change in loan size can move you into a different tier.
2. The lender's arrangement fee. Usually around 2% of the gross loan. Almost always added to the loan rather than paid in cash, which means you pay interest on it.
3. The broker fee. Ours is 1.5% of the loan, disclosed in writing before you commit to anything. Some brokers charge less and take a larger commission from the lender; some charge more. What matters is that you are told the figure before you are committed.
4. Third-party costs. The valuation and the legal work, paid to the valuer and the solicitors rather than to the lender or the broker. On a £500,000 property, budget somewhere around £1,500 to £2,500 for both, though it varies considerably with property type and complexity.
Some facilities add a fifth: an exit fee payable on redemption, typically 0% to 1% of the loan. It does not appear in a monthly rate, so ask about it directly.
A worked example
Take a common scenario. You need £300,000 in cash. The property is worth £500,000. You want twelve months, and you will repay by refinancing onto a buy-to-let mortgage once the works are done.
Using illustrative market assumptions — a 2% lender fee, our 1.5% broker fee, and a rate of 0.85% a month at this loan to value — the figures work out like this with rolled-up interest:
| | | |---|---| | Cash released to you | £300,000 | | Lender arrangement fee (2%) | £6,218 | | Broker fee (1.5%) | £4,663 | | Gross loan | £310,881 | | Interest, rolled up over 12 months | £33,235 | | Valuation and legal estimate | £1,900 | | Total cost of borrowing | £46,016 | | Repaid at the end of month 12 | £344,116 | | Gross LTV at redemption | 68.8% |
You can reproduce and adjust all of this in our bridging loan calculator, which includes every one of these costs rather than just the interest.
Two things in that table are worth dwelling on.
First, the gross loan is higher than the cash you receive, because both arrangement fees are added to it. You pay interest on money you never see. That is normal, but it is not always explained.
Second, the loan to value at redemption is higher than at drawdown. On a rolled-up facility, interest compounds onto the balance, so what started as 62.2% of the property's value ends as 68.8%. Most lenders size the facility against that final figure, which is why the maximum cash available is always lower than the headline LTV suggests.
How the three interest options change the total
Same property, same cash requirement, same term — different structures:
| Option | Gross loan | Interest | Monthly payment | Total cost | |---|---|---|---|---| | Rolled up | £310,881 | £33,235 | None | £46,016 | | Retained | £347,625 | £35,458 | None | £49,525 | | Monthly (serviced) | £310,881 | £31,710 | £2,642 | £44,491 |
Serviced interest is the cheapest, because nothing compounds and nothing is borrowed to cover the interest. Retained is the most expensive, because the lender takes the whole term's interest out of the advance at the start, which means borrowing a larger gross loan to release the same cash.
The gap between the cheapest and dearest option here is £5,034 — roughly 11% of the total cost — for exactly the same loan. That is not a rounding difference, and it is worth a conversation before you sign.
There is a catch with serviced interest: the lender has to believe you can afford the monthly payments. If the property produces no income during the term, most borrowers end up on rolled up whether they like it or not.
Why the rate moves when the loan size changes
Bridging is priced in loan-to-value tiers. A lender's rate card might look something like this:
| Gross LTV | Monthly rate | |---|---| | Up to 50% | 0.65% | | Up to 60% | 0.75% | | Up to 70% | 0.85% | | Up to 75% | 0.95% |
The trap is that the LTV used is the gross one, including fees and, on a rolled-up deal, the interest that will accrue. So asking for slightly more cash can push the gross LTV over a threshold and reprice the entire loan, not just the extra slice.
On our worked example, increasing the cash required from £300,000 to £345,000 lifts the redemption LTV above 75%, which moves the rate from 0.85% to well over 1% a month. The extra £45,000 of cash costs far more than 15% of £45,000, because the whole facility reprices.
This is one of the genuinely useful things a calculator does: it iterates the rate and the LTV against each other until they settle, which is difficult to do in your head.
What actually drives your rate
Loan to value. The single biggest factor. Below 60% you are in a competitive part of the market; above 70% the pool of lenders narrows and pricing hardens.
Property type. Standard residential is cheapest. Commercial, mixed-use, HMOs and land all price higher, in roughly that order.
The exit. A sale with strong comparables or a refinance with a decision in principle behind it is cheaper to fund than a vague plan.
Experience. On anything involving works, a developer with a track record gets better terms than a first-timer, for the same building.
Term. Longer facilities sometimes carry a slightly higher rate, but a term that is too short is worse — running past term usually triggers default pricing, which is considerably more expensive than paying for headroom at the outset.
Charge position. A second charge behind an existing mortgage prices higher than a first charge, because the security position is weaker.
Costs people forget
- Telegraphic transfer fees, typically £25 to £50 per transfer.
- Administration or documentation fees on some facilities.
- The lender's legal costs, which the borrower usually pays as well as their own.
- Extension fees, if the facility needs more time.
- Default interest, if it runs past term without an extension — often double the standard rate or more.
- Early repayment charges, though many bridging facilities have none after a minimum period. Worth confirming if you expect to redeem early.
Comparing two quotes properly
Do not compare monthly rates. Compare the total cost of borrowing over your expected term, which means asking every lender or broker for the same four numbers: the gross loan, the total interest, all fees, and the amount repayable at redemption.
A facility at 0.75% a month with a 3% arrangement fee and a 1% exit fee is more expensive over twelve months than one at 0.85% with a 2% arrangement fee and no exit fee. The cheaper-looking quote is the dearer deal.
Then ask one more question: what happens if I need an extra three months? The answer to that is worth real money on any project involving building work, because projects overrun.
Is it worth it?
That depends entirely on what the alternative is.
If a bridge lets you buy a property at auction for £40,000 below market value, £46,000 of finance costs on a twelve-month facility may still leave the deal comfortably profitable. If it saves a house purchase that would otherwise collapse, the comparison is against losing the property and starting again.
If the projected profit on a refurbishment is £25,000 and the finance costs £20,000, the deal does not work — and you want to know that before the valuation fee is spent, not after.
The way to find out is to run the numbers with every cost included. Our calculator does that, and it costs nothing to use. If the figures look workable, send us the deal and a specialist will confirm what is actually achievable against live lender criteria.
All figures in this guide are illustrative market assumptions used to demonstrate how bridging costs are built up. They are not Amram Finance's rates and are not an offer of finance.