A client called us last month celebrating. He'd just secured a bridging loan at 0.8% per month and thought he'd negotiated brilliantly. Then we did the maths together.
Interest, arrangement fee, exit fee, valuation, legal costs for both sides. Total: £82,000 to borrow £500,000 for 11 months. That's 16.4% of the borrowed amount. His celebration stopped quite abruptly.
Here's what actually happened next. He proceeded anyway. The bridging loan let him buy a property at auction for £380,000 that was worth £550,000. After £60,000 of refurbishment and £82,000 in finance costs, he walked away with £95,000 profit. The expensive finance was absolutely worth it because the opportunity was good enough.
In our experience, most people get bridging finance costs wrong in one of two ways. Either they focus only on the monthly rate and miss half the fees, or they see the total cost and panic without understanding when it makes commercial sense. This guide shows you both: exactly what you'll pay, and when paying it is the right decision.
The Complete Cost Breakdown
Bridging finance has six main cost components. Some lenders charge all six. Others waive certain fees to appear competitive while charging more elsewhere. We see this constantly: a lender advertises "no arrangement fee" but charges 1.2% per month instead of 0.75%. You save £7,500 upfront and pay £27,000 extra in interest. Here's what you actually need to know about each cost.
1. Interest Rate: 0.55% to 1.5% Per Month
This is your main cost. Bridging lenders quote monthly rates, not annual. A 0.75% monthly rate equals 9% annually if you repay after exactly 12 months. But here's the reality: most bridging loans don't run for neat 12 month periods, and interest compounds if rolled up. That 0.75% per month becomes 9.38% annually when compounded, not 9%.
What Determines Your Rate?
- Loan to Value: Below 60% LTV gets you the best rates (0.55% to 0.75% per month). Above 70% LTV and you'll pay 0.9% to 1.5% per month.
- Property Type: Standard residential property in good condition gets better rates than commercial property, land, or properties needing major works.
- Exit Strategy: A property under offer with exchange imminent gets better rates than a vague plan to sell in 6 months.
- Your Credit Profile: Clean credit gets you 0.2% to 0.3% lower rates than adverse credit.
- First Charge vs Second Charge: First charge bridging (no other loans against the property) gets better rates than second charge.
The difference between 0.75% and 1% per month seems small. Over 12 months on £500,000, it's the difference between £46,000 and £62,000 in interest costs. That's £16,000.
2. Arrangement Fee: 1% to 2% of Facility
Charged upfront for setting up the loan. On a £500,000 facility, expect £5,000 to £10,000. This fee is usually added to the loan (you don't pay it from your own money), but it increases the amount you're borrowing and therefore the interest you pay.
Can You Negotiate This?
Sometimes. If your deal is particularly strong (low LTV, substantial equity, excellent exit), you might negotiate the arrangement fee down to 1% or even 0.5%. Alternatively, some lenders offer lower arrangement fees but higher monthly interest rates. Always calculate the total cost across both options.
Arrangement Fee vs Interest Rate Trade Off
Lender A: 2% arrangement fee, 0.65% per month
Lender B: 1% arrangement fee, 0.85% per month
On a £500,000 loan for 12 months, Lender A costs £85,000 total. Lender B costs £86,000 total. Almost identical despite appearing very different. Always calculate total cost.
3. Exit Fee: 0% to 1% of Facility
Some lenders charge an exit fee when you repay. Others don't. On £500,000, a 1% exit fee is £5,000. Factor this into your comparison when evaluating lenders.
Exit fees are becoming less common as lenders compete for business. If a lender quotes an exit fee, ask if they'll waive it. Many will, particularly for good quality deals.
4. Valuation Fee: £1,000 to £3,000+
The lender will instruct a RICS valuer to inspect the property and confirm its value. You pay this fee regardless of whether the loan proceeds. Simple residential properties cost £1,000 to £1,500. Commercial properties, portfolios, or properties requiring specialist knowledge cost £2,000 to £5,000+.
This fee is paid upfront, usually directly to the valuation company. It's not refundable if the deal doesn't complete.
5. Legal Fees: £2,000 to £5,000+ Total
You pay legal costs for both your solicitor and the lender's solicitor. Budget £1,000 to £2,500 for your legal costs and a similar amount for the lender's legal fees.
- Simple first charge over residential property: £2,000 to £3,000 total
- Second charge or commercial property: £3,000 to £5,000 total
- Complex security (multiple properties, unusual structures): £5,000 to £10,000+
Legal fees increase if the deal is time critical and solicitors need to work overtime to complete quickly. If you need completion in 5 working days, expect to pay premium fees for urgent service.
6. Other Potential Costs
Broker Fee: 0% to 2% of Facility
Many bridging brokers don't charge borrowers because they receive commission from lenders. Some charge 0.5% to 2%. Clarify this upfront. A good broker typically saves you more in better rates than their fee costs.
Early Repayment Charges
Some lenders require you to pay interest for a minimum period (typically 3 to 6 months) even if you repay earlier. If you repay a 6 month minimum term loan after 2 months, you still owe 6 months interest. Check the minimum term before committing.
Extension Fees
If you need to extend beyond your original term, expect to pay an extension fee (typically 0.5% to 1% of the facility) plus ongoing monthly interest. Extensions are usually granted if your exit strategy is still credible and you're making progress.
Administration Fees
Some lenders charge small admin fees for things like redemption statements (£50 to £100), consent to second charges (£100 to £300), or other ad hoc requests. Reputable lenders keep these minimal.
Worked Examples: What You'll Actually Pay
Theory is useful. Real numbers are better. Here are three realistic scenarios showing total costs.
Example 1: £250,000 Bridging Loan for 6 Months
Scenario:
Property purchase at auction. Property value £350,000. Loan £250,000 (71% LTV). Exit via sale after light refurbishment.
Rate: 0.85% per month
| Cost Item | Amount |
|---|---|
| Arrangement Fee (2%) | £5,000 |
| Interest - Month 1 | £2,125 |
| Interest - Month 2 | £2,143 |
| Interest - Month 3 | £2,161 |
| Interest - Month 4 | £2,179 |
| Interest - Month 5 | £2,198 |
| Interest - Month 6 | £2,216 |
| Exit Fee (1%) | £2,500 |
| Valuation Fee | £1,200 |
| Legal Fees (both sides) | £3,000 |
| Total Cost | £24,722 |
Effective Cost: 9.9% of borrowed amount over 6 months (19.8% annualised)
Example 2: £500,000 Bridging Loan for 12 Months
Scenario:
Chain break on house purchase. Property value £750,000. Loan £500,000 (67% LTV). Exit via sale of current property (under offer).
Rate: 0.75% per month (good credit, low LTV)
| Cost Item | Amount |
|---|---|
| Arrangement Fee (1.5%) | £7,500 |
| Interest Rolled Up (12 months) | £46,800 |
| Exit Fee (waived) | £0 |
| Valuation Fee | £1,500 |
| Legal Fees (both sides) | £4,000 |
| Total Cost | £59,800 |
Effective Cost: 12% of borrowed amount over 12 months
Example 3: £1,000,000 Bridging Loan for 9 Months
Scenario:
Commercial property acquisition. Property value £1,600,000. Loan £1,000,000 (63% LTV). Exit via refinance to commercial mortgage.
Rate: 0.70% per month (strong deal)
| Cost Item | Amount |
|---|---|
| Arrangement Fee (1.5%) | £15,000 |
| Interest Serviced Monthly (9 months) | £63,000 |
| Exit Fee (0%) | £0 |
| Valuation Fee | £3,500 |
| Legal Fees (both sides) | £6,000 |
| Total Cost | £87,500 |
Effective Cost: 8.75% of borrowed amount over 9 months (11.7% annualised)
Key Observation from These Examples
Notice how the effective cost decreases as loan size increases and LTV decreases. Larger, lower LTV deals get better rates and proportionately lower fees. This is why bridging works particularly well for experienced property investors with substantial equity.
Rolled Up vs Serviced Interest: Which Costs Less?
Bridging lenders offer two ways to pay interest. Your choice affects total cost and monthly cash flow requirements.
Rolled Up Interest (Retained Interest)
Interest accumulates monthly and is added to your loan balance. You pay nothing during the term. All accumulated interest is repaid when you exit.
Advantages:
- No monthly payments required (preserves cash flow)
- Useful if you have no income during the bridging period
- Lender reserves the full interest amount upfront (certainty of available funds)
Disadvantages:
- Interest compounds monthly (you pay interest on interest)
- Total cost is 3% to 5% higher than serviced interest
- Reduces your maximum loan amount because interest is reserved from the facility
Example:
£400,000 facility at 0.8% per month for 10 months. Month 1 interest: £3,200. This gets added to the loan. Month 2 interest calculated on £403,200 = £3,226. By month 10, total accumulated interest is approximately £33,000.
Serviced Interest (Monthly Payments)
You pay interest monthly from your own funds (bank account, income, savings). The loan balance stays constant throughout the term.
Advantages:
- Lower total cost (no compound interest)
- Maximum facility available for your use (nothing reserved for interest)
- Saves 3% to 5% compared to rolled up interest
Disadvantages:
- Requires monthly cash outflow from your resources
- If you miss a payment, can trigger default provisions
- Not suitable if you have no income during the term
Same Example:
£400,000 facility at 0.8% per month for 10 months. You pay £3,200 each month from your bank account. Total interest paid: £32,000 (£3,200 × 10). Saving vs rolled up: approximately £1,000.
Which Should You Choose?
If you can afford monthly payments without stress, choose serviced interest. You'll save 3% to 5% on total costs. If monthly payments would strain your cash flow or you have no income during the term, choose rolled up interest for peace of mind. The extra cost is worth avoiding payment stress.
How Does Bridging Compare to Other Finance?
Bridging finance is expensive compared to traditional mortgages but potentially cheaper than missed opportunities or alternative solutions. The comparison that most people make is wrong. They compare bridging to mortgages and conclude it's expensive. Here's what they should compare instead: the cost of bridging versus the cost of not being able to proceed.
| Finance Type | Typical Annual Cost | Speed | Flexibility |
|---|---|---|---|
| Residential Mortgage | 4% to 6% pa | 6-12 weeks | Low (strict criteria) |
| Commercial Mortgage | 5% to 7% pa | 8-16 weeks | Low (strict criteria) |
| Bridging Finance | 9% to 18% pa | 1-3 weeks | High (flexible criteria) |
| Development Finance | 9% to 15% pa | 3-6 weeks | Medium (project specific) |
| Personal Loan (unsecured) | 8% to 30% pa | 1-2 weeks | Medium (credit dependent) |
| Credit Cards | 20% to 40% pa | Instant | High (but small limits) |
We've seen clients agonise over 18% annual bridging costs while sitting on opportunities that would return 40% profit. The question isn't whether bridging is more expensive than a mortgage. Obviously it is. The question is whether the opportunity you're funding justifies the cost. Usually, if you need bridging finance, you don't have the luxury of waiting 12 weeks for a mortgage anyway.
When Is Bridging Finance Worth the Cost?
Bridging finance is expensive. That doesn't mean it's not worthwhile. In our experience, people who succeed with bridging understand one thing: they're not buying money, they're buying time and certainty. Here's when the cost makes commercial sense:
1. When Speed Creates Value
Auction purchases require completion in 28 days. Chain break situations need immediate funding. In both cases, the ability to move fast creates value that exceeds the cost of expensive finance. Saving £50,000 on an auction purchase justifies £20,000 in bridging costs.
2. When Delay Costs More Than Bridging
If delaying your onward purchase by 3 months (waiting for your sale to complete) means paying £8,000 in temporary accommodation, £4,000 in storage, and potentially losing the property you want, bridging for £15,000 is the cheaper option.
3. When The Profit Justifies The Cost
Buying a property requiring refurbishment for £300,000 that will be worth £450,000 after £60,000 of works produces £90,000 gross profit. If bridging costs £25,000, you're still making £65,000 net profit. The expensive finance is worthwhile because the opportunity is profitable enough to absorb the cost.
4. When No Alternative Exists
If you cannot get a mortgage (property uninhabitable, you're between jobs, you've already got 4 mortgages and hit lender limits), bridging might be the only option. In this case, expensive finance beats no finance.
When Bridging Is NOT Worth It
- When you have no credible exit strategy (hoping to sell in a weak market)
- When the profit margin is too thin to absorb bridging costs
- When you're using bridging to solve a structural financial problem (debt consolidation with no income plan)
- When you could wait 3 months for a mortgage and save £30,000 in costs without meaningful downside
How to Reduce Your Bridging Finance Costs
You can't make bridging cheap, but you can avoid paying more than necessary. We regularly see the same deal quoted at 0.75% by one lender and 1.1% by another. That's £21,000 versus £68,000 in interest over 12 months on a £500,000 loan. Same deal, same borrower, different lender. Here's how to make sure you're at the lower end:
- Lower your LTV: Every 5% reduction in LTV typically saves 0.05% to 0.1% per month in interest.
- Improve your exit strategy: A property under offer gets better rates than a vague intention to sell. Evidence reduces lender risk.
- Use a broker: Lenders compete for broker business. Brokers often secure 0.1% to 0.3% lower rates than direct applications.
- Service interest monthly: If cash flow allows, avoid rolled up interest to save 3% to 5% on total cost.
- Negotiate the arrangement fee: On strong deals, you might negotiate from 2% to 1% (£5,000 saving on a £500,000 loan).
- Ask for exit fee waiver: Many lenders will drop the exit fee for competitive deals.
- Choose optimal term length: Don't take 12 months if you'll realistically exit in 6 months. Every month saved is interest saved.
- Compare total cost, not just rate: The lowest monthly rate often has the highest fees. Calculate the all in total cost.
Frequently Asked Questions
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