Bridging Loans: What You Need To Know

A mixture of growing availability and booming housing market have made bridging loans an attractive choice for both individual property investors and businesses alike.

In spite of growing popularity, as more people become wise to the sheer flexibility that bridging loans offer, there are still plenty of potential investors who are still unaware of the benefits of bridging loans and how they can be used.

It is now possible to invest in products which deliver returns to investors by making bridging loans to borrowers. Once considered wholly a specialist product for high net worth investors and well-funded specialist finance companies, bridging loans are increasingly being used for a wider range of UK property investments. It’s now much more possible for lower level investors to take advantage of the benefits offered by bridging loans, particularly via development loans and P2P secured lending in property investment.

As borrowers begin to recognise the applications of the short term finance that bridging loans can offer, more are using the funding for their property investments or businesses.

Bridging loans can be used for a number of functions, including the support of residential or commercial property transactions, development or renovation projects, and also purchases through property auctions. Likewise, business buyers are using bridging loans when a quick cash injection is necessary.

What Are Bridging Loans?

Bridging loans are usually short term loans, generally 12 months or less. They can be used as a “bridging” solution until next stage or permanent funding becomes available, or until they sell a property.

Bridging loans are also, typically, quicker to secure, whilst retaining security and flexibility for the borrower. Where a quick financial boost is required, a bridging loan can come in very handy.

This financial option is used by businesses where short term funding is necessary in order to:

  • Raise capital
  • Settle tax liabilities
  • Deal with emergencies
  • Meet business obligations
  • Purchase necessary items

Where an investor is purchasing a property or raising funds for refurbishment, bridging loans come in handy.

They’re suitable for:

  • House Builders
  • Landlords
  • Home Buyers
  • Property Investors
  • Developers

How Do Bridging Loans Work?

The principal difference between a regular loan and a bridging loan is organisational time taken to push the funding through. With regular lenders, it can take months to complete, but with a bridging loan, the finance can be ready in 24 hours or less.

Why Use Bridging Loans?

Bridging loans allow property investors to take advantages of opportunities as and when they arise. For example, to secure property deals, like with discounted asking prices, and also in the resolution of emergency situations where the funds would not otherwise have been available.

On the downside, bridging loans have higher interest rates than on regular loans. That’s why they’re principally used as a short term solution.

Businesses may use bridging finance for:

  • Tax: if a tax demand is made, and the required amount can’t be accessed within the necessary timeframe.
  • Raising capital: where a company needs to raise a sum in a short timeframe, bridging loans can be secured against property or land.
  • Business Obligations: To overcome financial difficulties or meet obligations of the business, a short term bridging loan can provide a solution.

Property Owners/Homeowners may use bridging finance for:

  • Repairing a broken property chain: where a homeowner is at risk of losing the home they’re set on purchasing, if a buyer in the chain drops out.
  • Temporary Cash Flow: during a property transaction where a short term influx of cash is necessary.
  • Downsizing: for owners who are downsizing, and therefore don’t need a mortgage, a bridging loan can help them to buy before their existing property is sold. This allows them to move independently, and quicker than if they’d had to wait.
  • Quick securing of property: to prevent a buyer from missing out on the property they want to buy before their existing one is sold.
  • Building a home.
  • Property conversion: for those wishing to convert a barn or other property, or for developers looking to turn a profit.

Developers or Investors may use bridging finance for:

  • Development and renovation projects.
  • Fast access to funds (as above).
  • Un-mortgageable properties: for fixing up dilapidated properties for which a mortgage wouldn’t be approved, a bridging loan can give investors the chance to renovate and sell at a profit.

So How Much Could I Borrow With A Bridging Loan?

As with any loan, it depends both on your circumstances and on the lender themselves.

Generally, the minimum you could borrow would be about £10,000. At the upper end of the scale, the limit is usually £1,000,000, though some lenders can go significantly higher than the £1,000,000 mark.


The structure of bridging loans does differ from one to another. Some bridging loans allow the borrower to just pay off the interest each month, and repay the loan at the end of the term. This structure is generally most suitable for those who will have access to regular cash flow throughout the duration of the loan, enabling them to meet the monthly interest payments. Alternative options include retained interest or “rolled up” interest.

  • “Rolled Up” Interest

This means that, rather than paying the interest every month during the term, the interest is effectively “rolled up” and paid at the end of the term. This is an option usually considered by borrowers who won’t be able to make interest payments monthly during the term, until the lump sum comes in at the end allowing them to pay back the loan and interest in full. In this case, however, the interest is typically compounded, meaning the repayment at the end of the term will be larger.

  • Retained Interest

Sometimes, it’s possible for a borrower to retain an amount from the loan representing a number of monthly interest payments, to help them meet those monthly interest payments. This option allows the borrower to choose the number of months, dependent – of course – on their affordability criteria. As the retained interest is still a part of the capital loan sum, interest will be charged on this amount. Equally, the total loan must be within the loan to value figure.

By the time the loan is redeemed, if there remains any unused retained interest, the lender tends to offer the borrower credit for this amount.

Interest Rates

This, again, depends on the lender. The actual rate of interest a borrower will pay also depends on:

  • The borrower’s credit score
  • The Loan to Value (LTV) – typically 70% – 75%
  • Whether it’s an open or closed bridging loan (see below)
  • The type of security the borrower can supply

The reason that the interest rates on bridging loans are usually higher than on mortgages is that the lender engenders more risk through bridging loans.

Typically, you can expect to pay between 1% and 1.5% interest per month, plus a 1%-2% arrangement fee or broker fee.

The Process

Whilst the process of funding with bridging loans can take as little as a few hours, depending upon the circumstances, it usually takes between a week and a month. In the case of a complex development loan, for example, it could take even longer. This is because these sort of complex loans need to meet a number of conditions, which will have to be discharged by the LPA (Local Planning Authority).

Paying It Back

You will, as with any loan, be expected to pay it back by the end of the term. The interest payments can be paid in whole when the total sum is repaid, retained from the loan at the commencement, or simply made via monthly installments.

Bridging Loan Periods

As mentioned, bridging loans are usually lent over a maximum 12 month period. It’s more practical for these higher interest loans to be simply short term solutions. Nonetheless, you can usually pay it off at any time within the given time period, if your finance comes in sooner.

It’s important, with bridging loans, to look at the overall cost of the loan, including all fees, rather than focusing solely on the interest rate charged.

The Two Types of Bridging Loan

  • Open Bridge

In this type of bridging loan, the borrower is required to set out a proposed exit plan for the repayment of the loan, but at the outset there’s no definitive date set. With an open bridge, a cut-off point is defined by which the loan must be repaid.

  • Closed Bridge

As above, the borrower has to meet a set date for the repayment of the loan. If the borrower, for example, has already exchanged on the sale and has a fixed completion date. The bridging loan will be repaid by the sale of the property.

Will I Need Legal Advice?

It’s always recommended that, when instigating a bridging loan application, the borrower engages an independent solicitor before signing any legal documents. This will ensure that both you and the lender are protected.

Finding A Reputable Lender

It’s important to ensure you are dealing with an accredited, reputable lender when obtaining a bridging loan. Make sure that the one you choose is:

  • A Member of the Council of Mortgage Lenders
  • Is both authorised and regulated by the Financial Conduct Authority (FCA)
  • Has experience working on similar projects to yours
  • Has a proven track record in the field

Increasing numbers of property buyers and investors, both business and individual, are recognising the usefulness of bridging loans for short term funding. If it sounds like an option that might be useful to you, then make sure you do plenty of research before getting involved!

As always, don’t forget to check out our current investment opportunities, and register with us to find out more about investing with The House Crowd.

Register Now for more Info View our Property Investments

Glossary of Property Investment Terms

There are a lot of terms unique to the investment world that will be new to those just embarking on building a property portfolio. That’s why we thought it would be very useful for you to have a thorough Glossary of Property Investment Terms to help you to thoroughly understand some of the finer points of investing. We hope you find it useful!

Glossary of Property Investment Terms | The House Crowd

A Shares 

A class of shares which have specific rights attached to them, as set out in a company’s articles of association.

Angel Investors

Investors who provide investment and other support to early-stage businesses. Traditionally angels are wealthy individuals who have a significant amount of entrepreneurial, industry or investment experience.

Angel Network (or Angel Syndicate)

A group of angel investors that pool together money and other resources to invest in, and provide support to, early-stage businesses.

Annualised Return

Average return each year over the minimum term, based on the total of rental income and estimated capital growth.

Find out more about Annualised Returns here.

Articles of Association

A company document that sets out its management and administrative structure.

The articles dictate the internal affairs of the company such as director and shareholder rights, the issue and transfer of shares, and the organisation of meetings.

Asset Class

A class of economic property that has similar characteristics. Listed shares, government bonds and real estate are all asset classes.

Glossary of Property Investment Terms | The House Crowd

B Shares

A class of shares which have specific rights attached to them, as set out in the company’s articles of association.

Below Market Value (BMV)

Properties are sometimes sold at below the market value, meaning they are offered at lower prices than comparable properties.

Beneficial Shareholder / Owner

An investor who owns the economic value and other shareholder benefits attached to shares, such as dividends and tax reliefs, but the registered title to their shares is held with another person or entity often for administrative convenience.

Bridging Finance

Bridging loans are a short-term funding option. They are used to ‘bridge’ a gap between a debt coming due – primarily for property transactions – and the main line of credit becoming available. Alternatively, they can act as a short-term loan in pressing circumstances.

Glossary of Property Investment Terms | The House Crowd

Capital Employed  

The sum of shareholders’ equity and debt liabilities; can be simplified as Total Assets – Current Liabilities.

Capital Growth

The increase in value of an asset or investment over time, measured on the basis of the current value of the asset or investment, in relation to the amount originally invested in it.

Convertible Equity

An equity investment where money is invested in a company in exchange for shares to be issued at a later date. The share issue is generally triggered by the company raising finance from other investors. In return for investing early, the convertible equity investors receive a discount on the price of the shares issued to the other investors.

Convertible Note

A debt investment where money is invested in a company with the expectation that the debt will “convert” into shares issued at a later date. The share issue is generally triggered by the company raising finance from other investors. Before the conversion, the investor is paid interest.


The funding of projects or ventures by raising money from a large number of people, usually online. The three main types of crowdfunding are equity, debt and rewards/donations.

Glossary of Property Investment Terms | The House Crowd

Damp Proof Course (DPC)

A barrier through the structure by capillary action such as through a phenomenon known as rising damp.


Money owed by one person/company to another. The borrower has to repay the money at a later date and generally also has to pay interest.


A reduction in the ownership percentage of a share in a company caused by the issue of new shares.


An investment strategy that involves mixing the amount, values and kinds of investments within a portfolio to spread risk and minimise losses.


A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders. Dividends can be issued as cash payments, as shares of stock, or other property.

Dividend Distribution

The distribution of a portion of a company’s profits to investors.

Drag-Along Right

A contractual obligation that allows majority shareholders to force minority shareholders to join in the sale of a company on the same terms, valuation and conditions of the majority shareholders.

Glossary of Property Investment Terms | The House Crowd

Enterprise Investment Scheme (EIS)

A UK tax scheme offering income tax and capital gains tax reliefs to qualifying private investors who invest in eligible businesses.


Shares or other securities that represent an ownership interest in a company.

Equity Crowdfunding

A type of crowdfunding that enables multiple investors to a buy shares, or other equity interests, in a company, usually through an online process.


An event when investors may be able to cash in and sell their shares, such as an initial public offering (IPO) or trade sale.

Glossary of Property Investment Terms | The House Crowd

FENSA Certificate

Documentary evidence that the installation work has been self-certified to comply with the Building Regulations

Financial Conduct Authority (FCA)

The financial services regulatory body in the UK, formerly called the Financial Services Authority (FSA).

Fully Diluted

All the shares of a company in issue, plus all shares which are the subject of options or other contractual rights to be issued in the future (regardless of whether the right has vested).


An investment opportunity that seeks to raise money to be invested across multiple businesses. Fund campaigns are commonly used to invest in businesses participating in accelerator programmes and competition winners.

Glossary of Property Investment Terms | The House Crowd

Gas Safety Certificate

By law, landlords must have all gas appliances serviced regularly, normally once a year, by a Gas Safe registered engineer.

Gross Development Value (GDV)

The estimated value that a property, or new development, would fetch on the open market if it were to be sold in the current economic climate.

Gross Rate of Return

The total rate of return on an investment before deduction of any fees or expenses. The gross rate of return is quoted over a specific period of time, such as a month, quarter or year. It is often quoted as the rate of return on an investment in marketing materials.


The stage that a business is at when it has passed its ‘seed’ or initial stage and has established proof of concept and looking to grow.

Gross Yield

The yield on an investment before the deduction of taxes and expenses (such as management fees and maintenance costs). Gross yield is expressed in percentage terms. It is calculated as the annual return on an investment prior to taxes and expenses divided by the current price of the investment.

Glossary of Property Investment Terms | The House Crowd

High Net Worth Investor (HNWI)

A classification used by the financial services industry to denote an individual, or a family, with high net worth. If you earn more than £100,000 a year or have net assets of more than £250,000, you may qualify as a High Net Worth Investor.

HMO (House in Multiple Occupation)

A house occupied by more than two qualifying persons, being persons who are not all members of the same family. A “qualifying person” is a person whose only or principal place of residence is the HMO.

Glossary of Property Investment Terms | The House Crowd

Initial Public Offering (IPO)

The first time that a company’s shares are available for public purchase by means of a listing on a stock exchange. This process is also known as ’going public’ or ‘floating’.

Glossary of Property Investment Terms | The House Crowd

Know Your Client (KYC)

The regulatory process that financial services firms and certain other businesses must perform to verify the identity of their customers to help prevent against money laundering and other financial crimes.

Glossary of Property Investment Terms | The House Crowd

Loan to Value (LTV)

A term commonly used by banks and building societies to represent the ratio of the first mortgage lien as a percentage of the total appraised value of real property. For instance, if someone borrows £130,000 to purchase a house worth £150,000, the LTV ratio is £130,000 to £150,000 or £130,000/£150,000, or 87%. The remaining 13% represent the lender’s ‘haircut’, adding up to 100% and being covered from the borrower’s equity. The higher the LTV ratio then the riskier the loan is for a lender.

More on Loan to Value here

Local Housing Authority (LHA)

The main provider of social housing (or housing authorities) for people who cannot afford to buy their own homes. Local authority housing is allocated according to eligibility and need. Rents are based on the household’s ability to pay.

Glossary of Property Investment Terms | The House Crowd

Net Profit

The actual profit after deducting expenses, such as management fees, letting fees, maintenance costs which are were not included in the calculation of gross profit, have been paid.

Net Yield

Net yield is everything after expenses. It takes into account all fees and expenses associated with owning a property. It is a far more accurate way of calculating actual yield. It is also much harder to calculate as most costs are variable.


A person or firm that holds assets, such as shares on behalf of another, enabling the nominee to handle complicated administrative matters.

Glossary of Property Investment Terms | The House Crowd

Open Market Value (OMV)

The realistic price that could be achieved for a property if marketed for sale.


A right granted which gives the receiver an option, but not an obligation, to buy (or sell) shares in a company, or other securities, at an agreed price within a certain time frame.

Ordinary Shares  

Shares which represent normal equity ownership in a company. Ordinary shares generally entitle the owner to vote at shareholder meetings, receive dividends, and receive distributions on the winding up of a company, but do not carry preferential treatment.

Glossary of Property Investment Terms | The House Crowd

Pre-Emption (Also called Anti-Dilution)

A contractual provision which requires the company to offer its shareholders the chance to purchase additional shares to maintain their percentage of equity in advance of further shares being issued.


A group of financial assets such as shares, property or bonds, held by one person or entity.

Portable Appliance Testing (PAT)

The name of a process by which electrical appliances are routinely checked for safety.


The period of time after an investment has been made in a company.

Preference Shares

A class of shares which have specific preferential rights attached to them, as set out in the company’s articles of association. Typically the preference will be a dividend paid in priority to other shareholders, or priority to distributions on the winding up of the company.

Professional Investor

A classification used by the financial services industry to denote an individual or family.

Property Yield  

A calculation to give an indication of annual returns based on the rental income against how much the property cost: Property Yield (%) = Rental Income/(Property purchase price + Refurbishment Budget).

Glossary of Property Investment Terms | The House Crowd

Registered Social Landlord (RSL)

Registered providers that own and manage social housing.

Return on Capital Employed (ROCE)

The return on capital employed is, considered by some, a better measurement than return on equity, because ROCE shows how well a company is using both its equity and debt to generate a return.

RICS Surveyor

Building surveyors, like all surveyors, inspect property or land. RICS (Royal Institute of Chartered Surveyors) is a professional body for chartered surveyors, which includes chartered building surveyors. RICS sets standards and guidance for surveyors and provides training and professional development opportunities for surveyors to comply with changing standards and legislation.


The potential for losing something of value. With equity investment the main risk to the investor is losing the money invested.

Glossary of Property Investment Terms | The House Crowd

Secondary Market

A market where investors purchase shares from other investors rather than from the company that has issued the shares directly.

Shareholder Agreement

An agreement between a company’s shareholders detailing certain rights and obligations of the shareholders.


An ownership interest in a company which entitles the shareholder to certain rights, for example a share of profits or dividend payments from the company. Shares are also referred to as “stock”.

Sharia Compliant

Investments that comply with Islamic law and principles, eg. ethical investments with no borrowing where investors share in the profits and losses.

Solicitors Regulatory Authority (SRA)

The regulatory body for solicitors in England and Wales.

Sophisticated Investor

A type of investor who is deemed to have sufficient investing experience and knowledge to weigh the risks and merits of an investment opportunity. This category is for people who have invested in shares in more than one unlisted company (including via The House Crowd) in the last two years or have been a member of a business angel syndicate or network for at least six months including The House Crowd’s Investor group.

Special Purpose Vehicle (SPV)

A Company set up for a particular purpose. In the case of The House Crowd, SPV’s are set up for the purpose of purchasing/owning a property on behalf of the investors.

Subscription Agreement  

An agreement between a company and investors purchasing shares in the company. It sets out the terms of the share purchase and details certain rights and obligations of the company and the investors as shareholders.

Glossary of Property Investment Terms | The House Crowd

Tag-Along Rights

A contractual obligation which gives minority shareholders the right, but not the obligation, to join a transaction where shares are sold by majority shareholders, on the same terms, valuation and conditions of the majority shareholders.

Term Sheet  

A non-binding agreement addressing the basic terms and conditions under which an investment will be made in a business. A term sheet often serves as a template to develop more detailed legal investment documentation.

Glossary of Property Investment Terms | The House Crowd


An asset or property that is free and clear of any encumbrances such as creditor claims or liens. An unencumbered asset is much easier to sell or transfer than one with an encumbrance. Examples of typical unencumbered assets are a house without any mortgage or other lien on it, a car where the automobile loan has been paid off or stocks purchased in a cash account, rather than a margin account.

Glossary of Property Investment Terms | The House Crowd


The monetary worth of a business or property as determined by considering both qualitative and quantitative factors.

We hope you found this useful. If you have any questions, then please don’t hesitate to get in touch with us. We’re always here to help you with anything you might want to talk about, so do drop us a line!