What Are The Fees Involved With a Bridging Loan?
Bridging loans come with various costs that typically include arrangement fees ranging from 1-3% of the loan value, plus monthly interest charges between 0.5%-2% per month.
Additional expenses include valuation and legal costs, which can vary significantly depending on the property’s complexity and the amount of legal work required from your solicitor.
When considering a property investment, it’s key to factor in all associated costs to accurately assess your potential profit margins and ensure the deal remains viable.
The main costs you’ll encounter include:
| Fee Type | Typical Cost / Range |
| Arrangement Fee | 1% – 2% of the loan amount |
| Interest | 0.5% – 2% per month (6–24% per year) |
| Valuation Fee | £300 – £1,000+ (depends on property value) |
| Legal Fees | £500 – £2,000+ (yours and the lender’s) |
| Exit Fee | 1% – 2% of the loan amount (MT Finance does not charge any) |
| Broker Fee | 1% – 3% of the loan (if using a broker) |
| Admin/Processing Fees | £100 – £500+ |
| Telegraphic Transfer Fee | £25 – £50 |
| Extension Fees | Varies |
Beyond the direct loan costs, you may also incur expenses for professionals such as accountants, architects, contractors, and designers, depending on your project requirements.
Bridging Loan Fees Example:
Based on a £1 million loan over 18 months, you can expect the following costs:
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Interest: £162,000
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Arrangement Fee: £20,000
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Legal & Valuation Fees: ~£6,000
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Exit Fee: £10,000
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Total Estimated Cost: £198,000
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Total Repayment at 18 Months: £1.2 million
What Are The Average Fees For Bridging Loans?
The typical monthly interest rate for bridge finance ranges from 0.5%-2%, with variations between lenders based on their specific criteria and risk assessment.
Several factors influence the rates for bridging loans, including:
- Property type and loan category (residential, commercial, second charge)
- The lender’s risk tolerance and appetite
- Your project’s risk profile
- Your planned exit strategy
- Your experience and track record as a borrower
- The duration of the loan term
How Is The Interest Repaid On a Bridging Loan?
Serviced Interest
Monthly payments are required throughout the loan term. Early repayment typically eliminates future interest charges without penalties, unless there’s a minimum term clause.
Rolled-Up Interest
All interest accumulates and is paid at the loan’s conclusion. Some lenders may still enforce minimum terms, requiring you to pay interest for the full period even with early repayment.
Retained Interest
The lender calculates interest for a predetermined period (typically 6 months) and deducts it upfront from the loan amount.
Early repayment may not result in a refund for unused months, effectively creating an indirect early repayment cost.
How Can I Reduce The Fees On My Bridging Loan?
Work with a specialist broker – Bridging loan brokers maintain relationships with numerous lenders and can identify the most competitive rates and terms based on your specific requirements.
Different lenders may offer significantly varying rates for identical scenarios, simply due to their risk appetite and lending criteria. Understanding broker fees upfront and comparing options could save you thousands in charges.
Property type – Residential properties typically attract lower interest rates compared to commercial properties, as they’re viewed more favourably due to stronger market demand and liquidity.
Provide additional security – If you have equity in other properties, this can be used to secure your bridging loan, potentially reducing your deposit requirement and securing more favourable terms.
Show experience and planning – Lenders prefer working with experienced borrowers who have proven track records. A comprehensive exit strategy and clear business plan will make your application more attractive and help secure better rates.
Are There Early Exit Fees With Bridging Loans?
Yes, certain lenders impose early exit fees if you repay the loan within a specified timeframe, typically 1-3 months. These charges can range from 1% to 2% of the total loan amount. MT Finance does not charge any early exit fees.
This policy varies between providers, with some lenders not charging any early redemption penalties whatsoever.
For longer-term loans (12-24 months), lenders may need to earn minimum interest to cover underwriting and funding costs, hence the early exit charges.
All early exit fees will be clearly outlined in your loan agreement, which serves as your reference document for understanding these charges.
What Are The Fees if You Default On Your Bridging Loan?
Defaulting on your bridging loan and missing agreed repayment deadlines will result in default charges of 1%-2% per month as additional interest, plus late payment fees (typically £500-£1,000).
Default charges may continue accumulating monthly until the loan is fully repaid.
The lender may initiate a loan review process to explore repayment alternatives, which could incur administrative or review fees of £500-£1,000.
Additional costs may arise if the loan remains in arrears, including legal fees, repossession costs, and receivership charges.
There are several options if you’re experiencing repayment difficulties or delays, which are common when construction work overruns or legal complications arise with the property.
Speaking with your lender early may provide solutions such as loan extensions, refinancing, or rebridging arrangements to provide additional time for completion.
