Bridging Loan Costs And Fees Explained

What makes up the total cost of a bridging loan

Five distinct cost components combine to create your total bridging loan expense. Each serves a different purpose in the lending process. The components vary based on loan amount, property type, lender policy, and your individual circumstances. Interest charges typically form the largest portion, but fees can add substantially, particularly on shorter-term facilities where arrangement fees represent a higher proportion of the overall cost. Some fees are payable upfront; others can be added to the loan and repaid at redemption.

Interest rate

Monthly interest rates on bridging loans typically fall between 0.5% and 1.5% per month, depending on risk factors including loan-to-value ratio, property type, and exit strategy credibility. These translate to annualised equivalents of roughly 6% to 18%, though most bridging loans complete within twelve months, making the monthly rate the more practical measure for comparing costs.

Interest is calculated daily on your outstanding balance and charged monthly, or accumulated depending on your chosen payment structure. The daily accrual method means you pay interest only on the period you actually use the facility. Repaying your loan early directly reduces total interest charges, which is one of the most significant advantages of bridging finance over longer-term products.

The factors driving your specific rate are LTV, whether security is residential or commercial, the credibility of your documented exit strategy, your credit history and experience, the gross loan amount, and the term you need.

Arrangement fee

The arrangement fee covers the lender's costs for underwriting, structuring, and administering your bridging facility. Most lenders charge between 1% and 2% of the gross loan amount, though this can be negotiated downward on larger transactions. Some lenders also charge separate administration or assessment fees at drawdown, so it is worth confirming the full fee schedule before comparing offers.

This fee is typically payable on completion, though most lenders allow it to be added to the loan itself. Adding it to the loan increases your total borrowing, meaning interest accrues on the fee amount throughout the term, which marginally increases overall cost. Larger transactions often attract proportionally lower arrangement fees as a percentage, while smaller loans may face minimum fee thresholds.

Valuation fee

Bridging lenders require an independent assessment of your property's value to confirm their security position. Fees range from approximately £500 for straightforward residential property to £10,000 or more for complex commercial property, development sites, or high-value assets requiring a full RICS Red Book valuation.

Desktop valuations using comparable data cost least but provide limited assurance. Drive-by valuations involve external inspection only. Full RICS surveys include detailed internal and external assessment and are required on most commercial and high-value transactions. The valuation fee is usually payable upfront and is non-refundable in most cases, even if the loan does not complete. This is a genuine cost risk to factor in before committing to a formal application.

Legal fees

Legal costs cover solicitor work on both sides: your own representation for reviewing documentation and registering the charge, plus the lender's legal fees for their due diligence and security registration. Lender's legal fees are typically deducted from the loan advance.

Combined fees typically range from £1,500 to £5,000 for standard residential bridging. Complex transactions involving commercial property, multiple securities, SPV structures, or corporate borrowers attract higher costs, potentially £10,000 to £25,000 on large development exit facilities. Additional costs arise where title is complex, property is unregistered, or leasehold interests require detailed review.

Exit fee

Most bridging loans carry no exit fee. This absence of redemption charges allows you to repay early without penalty when your exit completes ahead of schedule. Some lenders charge a small administration fee of £50 to £200 for releasing their charge. A minority charge exit fees of 0.5% to 1% of the loan amount, which is why checking total cost, not just the headline rate, matters when comparing lenders.

Loan to value: what it means for cost and availability

The maximum loan available depends on both the lender's LTV limits and the value of your security. Most bridging lenders offer up to 75% LTV on standard residential or semi-commercial property. Commercial property and development land typically face lower limits of 60% to 70% LTV.

LTV is not just a lending limit. It is the single strongest influence on the rate you receive. At 55% LTV you access the most competitive rates in the market. At 75% LTV, fewer lenders participate and rates increase materially. Every reduction in LTV improves your rate and widens your lender options, which is why keeping borrowing as low as the transaction allows is one of the most effective ways to reduce total cost.

Rolled-up interest, monthly interest, and retained interest

Three distinct structures exist for handling bridging loan interest. Each carries different implications for your monthly cash flow and total cost. Selecting the right structure for your circumstances can make a meaningful difference to what you pay.

Rolled-up interest accumulates throughout the loan term and is settled in full at redemption alongside the principal. You make no monthly interest payments, preserving cash flow for the project or purchase. The cost is that interest compounds month on month: you pay interest on accumulated unpaid interest. For a £500,000 loan at 0.75% monthly over twelve months, rolled-up interest results in approximately £2,300 more in total charges compared to monthly payments, due to this compounding effect.

Monthly interest payments require you to service the interest each month as it accrues. This approach produces the lowest total interest cost because no compounding occurs. It demands consistent monthly cash flow, which may not suit borrowers whose exit funds from a sale or refinance are not yet available. Regulated bridging loans typically require either rolled-up or retained interest rather than monthly payments.

Retained interest involves the lender calculating the full term's interest at the outset and deducting it from your gross advance at drawdown. You receive a net loan amount after this deduction, with no further monthly payments required. Most lenders require interest to be retained for at least a minimum period, commonly 30 days, even if you repay early. If you repay before the end of the agreed term, unused retained interest beyond the minimum period is refunded. This structure suits borrowers who want certainty about their net available funds from day one.

Bridging loans for refurbishment

Many bridging lenders include refurbishment costs within the overall facility. For light refurbishment, cosmetic upgrades and minor works, most lenders will fund up to 100% of clearly defined and value-adding costs, subject to the overall LTV limit. For heavier structural works, lenders will require a detailed schedule of works and may impose stage-release conditions similar to development finance.

The total facility including refurbishment costs must remain within the lender's LTV limits, typically assessed against the gross development value (GDV) on completion rather than the current value. If refurbishment costs overrun, lenders are not obliged to increase the facility, so accurate cost planning before application is essential.

Worked examples at three loan sizes

The following examples use current market rates and typical fee structures to show total costs at three loan sizes representative of the transactions FD Commercial arranges. All examples assume first charge security with a clear, documented exit strategy. Rates and fees vary based on individual circumstances, property type, and lender.

£300,000 bridging loan over 6 months

This example shows the cost difference between rolled-up and monthly interest at 0.75% per month with 65% LTV on residential security.

£1,500,000 bridging loan over 12 months

Development exit example using rolled-up interest at 0.70% monthly with 60% LTV, reflecting the lower rate achievable on well-structured transactions at this size.

At this loan size, the absence of broker fees saves approximately £15,000 to £30,000 compared to brokers charging 1% to 2%. Total cost as a percentage of the loan is approximately 10.3%, within the typical range for bridging at this level.

£5,000,000 bridging loan over 18 months

Large development exit facilities often achieve negotiated terms. This example assumes 0.62% monthly interest, 55% LTV, and a negotiated arrangement fee of 1% reflecting the lender's interest in a well-structured, lower-risk transaction.

The negotiated 1% arrangement fee, reduced from the standard 1.5% to 2%, saves £25,000 to £50,000 at this loan size. Such negotiation becomes achievable on larger facilities where lenders compete for substantial, lower-risk business. The 0.62% monthly rate reflects the security provided by 55% LTV and a credible exit from an experienced borrower.

What determines your rate

Loan to value ratio exerts the strongest influence on pricing. Lower LTV provides lenders with a greater security buffer, translating directly into lower rates. Borrowing at 55% LTV might secure rates from 0.55% monthly; 75% LTV applications typically face rates above 0.90%. Each 5% to 10% reduction in LTV can meaningfully improve your rate.

Property type affects both rate and maximum loan availability. Standard residential property attracts the most competitive pricing. Commercial property, mixed-use assets, development sites, and properties requiring refurbishment carry higher rates due to increased complexity and more limited buyer pools if the lender needs to enforce their security.

Exit strategy credibility is the most scrutinised element of any bridging application. A clearly documented exit, whether a property sale with evidence of realistic pricing or a refinance with a mortgage agreement in principle, demonstrates reduced risk and supports better rates. Closed bridging loans with a fixed repayment date, such as cases with exchanged contracts, carry lower risk and typically achieve better terms than open bridging where the repayment date is not guaranteed.

Borrower profile encompasses credit history, previous bridging experience, and overall financial standing. Experienced property professionals with clean credit and demonstrable exit track records access preferential rates. First-time bridging borrowers or those with adverse credit face higher pricing.

Loan size benefits larger transactions. Fixed costs represent a smaller proportion of larger facilities, and lenders compete more aggressively for substantial business. Facilities above £1,000,000 frequently achieve better terms than smaller applications.

Term length influences total cost through the compounding effect of rolled-up interest. An 18-month facility at the same monthly rate as a 6-month loan costs significantly more in absolute terms. Keeping the term as short as your exit strategy reliably allows reduces total cost.

Early repayment and default

Most bridging loans carry no early repayment charges. Each month you repay ahead of schedule saves you a full month's interest on the outstanding balance. On a £1,500,000 loan at 0.70% monthly, that is £10,500 saved per month of early repayment. If your sale or refinance completes in month eight of a twelve-month facility, you save £42,000 in interest that would otherwise have accrued.

Defaulting carries serious consequences. Failure to repay triggers default interest at rates substantially above your contracted rate. Sustained non-payment gives the lender grounds to enforce their security, which can mean appointment of a receiver and a forced sale of the property to recover the debt. If you foresee difficulty repaying on time, contact your broker or lender early. Extensions are sometimes available, though not guaranteed, and negotiating them in advance is always preferable to defaulting.

How to reduce the total cost

Lower the LTV. If you can provide additional security or reduce your borrowing requirement, the rate improvement often exceeds the opportunity cost of the additional equity deployed. Moving from 70% to 60% LTV might reduce your rate from 0.85% to 0.70% per month. On a £1,000,000 loan over twelve months, that is approximately £18,000 in interest savings.

Document your exit. A clear, evidenced exit strategy reduces perceived risk and supports rate negotiation. If selling, provide comparable sales evidence and realistic timing. If refinancing, obtain an agreement in principle from the intended long-term lender before approaching the bridging lender.

Use a no-fee broker. Broker fees of 1% to 2% add £15,000 to £30,000 on a £1,500,000 loan. FD Commercial charges no broker fees on most cases and has comprehensive access to the market, so there is no trade-off between avoiding the fee and narrowing your lender options.

Repay early when your exit allows. Because most bridging loans carry no early repayment charges, every month you repay ahead of schedule reduces your total cost directly. Building a realistic exit timeline and working to it is the simplest way to control the total interest you pay.

Frequently asked questions

What is the typical total cost of a bridging loan?

Total costs typically fall between 7% and 15% of the loan amount for facilities held six to twelve months. Lower-risk transactions with strong exits and low LTV achieve costs toward the lower end. Higher leverage or complex security pushes toward 15% or above.

How is bridging loan interest calculated?

Interest is calculated daily on your outstanding balance using the agreed monthly rate divided by days in the month. This means you pay only for the period you use the facility. Interest may be charged monthly, rolled up to redemption, or retained from your advance at drawdown.

Is rolled-up interest more expensive than monthly interest?

Yes, marginally, because of compounding. You pay interest on accumulated interest rather than on the original balance only. The difference typically amounts to 2% to 5% of total interest cost over a twelve-month term. Rolled-up interest preserves monthly cash flow, which may be essential when your exit funds are not yet available.

What is retained interest on a bridging loan?

The lender calculates the full term's interest at the outset and deducts it from your gross advance. You receive a net loan amount after this deduction with no further monthly payments. Most lenders require interest to be retained for at least the minimum term, commonly 30 days. Unused retained interest beyond this minimum is typically refunded if you repay early.

What is the minimum bridging loan from FD Commercial?

FD Commercial arranges bridging finance from £250,000 across England, Scotland and Wales. No broker fees on most cases.

Do I pay a broker fee?

FD Commercial charges no broker fees on most cases. Other brokers typically charge 1% to 2%, which on a £1 million loan amounts to £10,000 to £20,000. Always ask any broker upfront what they charge and whether it is added to the loan or invoiced separately.

Can the arrangement fee be added to the loan?

Yes, in most cases. Adding it to the loan means interest accrues on the fee amount throughout the term, marginally increasing your total cost. It reduces upfront cash requirements at drawdown. The gross loan including all fees must remain within the lender's LTV limits.

Are there early repayment charges on bridging loans?

Most bridging loans carry no early repayment charges. Some lenders apply administration fees of £50 to £200 for redemption processing. Always confirm the specific terms before signing. Repaying early is one of the most effective ways to reduce total cost.

What LTV can I borrow up to?

Most bridging lenders will consider up to 75% LTV on residential security. Commercial property faces a ceiling of 65% to 70% LTV in most cases. Development land attracts lower limits. Borrowing within 65% LTV substantially improves your rate and lender options.

Does property type affect cost?

Yes, significantly. Residential security attracts the most competitive rates. Commercial property, mixed-use assets, land, and properties requiring substantial works command higher rates due to increased complexity and risk. Restricted-use properties such as care homes or licensed premises face further constraints on both rate and maximum LTV.

What is the difference between first and second charge bridging?

First charge bridging takes the primary security position. Second charge sits behind an existing mortgage, giving the bridging lender secondary claim in default. Second charge commands a higher rate than first charge, typically 0.15% to 0.40% per month more.

Is bridging cheaper than a commercial mortgage?

Not in terms of rate. A commercial mortgage at 6% to 8% per annum is substantially cheaper than bridging at 0.65% to 0.90% per month. Bridging is justified by speed, flexibility, and short-term access when a commercial mortgage is not yet available. It is a tool for the transition period, not a long-term financing solution.

What happens if I cannot repay on time?

Late repayment triggers default interest at a higher rate than your contracted terms. Sustained failure to repay gives the lender grounds to enforce their security, which can mean a receiver is appointed and the property sold to recover the debt. Contact your broker or lender as early as possible if you foresee difficulty. Extension terms are sometimes available, but they are easier to negotiate before default than after.

Do I pay the valuation fee if the loan does not complete?

In most cases, yes. Valuation fees are non-refundable once the surveyor is instructed, regardless of whether the loan completes. Some lenders refund the fee if they decline the application, but this is not standard. Factor this cost into your decision to proceed to formal application.

Why do I pay the lender's legal fees?

The lender's solicitor handles their due diligence, title checks, and security registration. This is standard across bridging and commercial lending. Both parties require independent representation. In some cases, dual representation by a single solicitor acting for both borrower and lender is possible, which can reduce combined legal costs.

How long does a bridging loan take to complete?

Straightforward cases with an organised borrower can complete in days. Most cases complete within two to four weeks. Complex transactions involving commercial property, multiple titles, or corporate structures typically take three to six weeks. Speed depends as much on borrower preparation as on the lender's process.

Can multiple properties be used as security?

Yes. Cross-collateralising multiple properties can increase total borrowing or reduce blended LTV across a portfolio. Legal fees and valuation costs increase with each additional property, and complexity can extend the completion timeline.

Can I get bridging finance with adverse credit?

Yes. Specialist bridging lenders consider adverse credit cases that mainstream lenders would decline. The lender's focus is the security value and exit strategy credibility. Pricing will be higher than for clean-credit applicants, with the severity, age, and cause of any adverse credit all factored in.

What is the maximum term for a bridging loan?

Most bridging loans run for twelve to twenty-four months. Some lenders extend to thirty-six months. For holding periods beyond eighteen to twenty-four months, development finance or a commercial mortgage will almost always prove more cost-effective.

Are bridging loans regulated by the FCA?

Regulated bridging applies to loans secured against property the borrower or a close family member occupies or intends to occupy. Non-regulated bridging covers investment properties, commercial assets, and business purposes. Regulated facilities carry additional consumer protections and specific requirements around interest structure and affordability. See our regulated vs unregulated bridging guide for a full comparison.

Can bridging loans fund refurbishment costs?

Yes. Many lenders include clearly defined refurbishment costs within the overall facility, provided works are value-adding and the total facility remains within LTV limits. Heavier structural works may require stage releases or a development finance structure rather than standard bridging.

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