What Happens if You Cannot Repay a Bridging Loan?
If you cannot repay your bridging loan on the agreed repayment date, you will typically incur late fees and added monthly interest that the loan remains outstanding.
The average loan term for a bridging loan is 12-24 months maximum and the interest is usually rolled up until the end and paid in full upon exit.
In most cases, if the loan is unpaid because the sale of the property or building work is delayed by a few weeks or months, the bridging lender will usually just charge some additional interest and late fees until it is exited and paid in full.
In more severe cases, if the loan remains unpaid for a longer period of time, they could take you to court, appoint liquidators or repossess your property to recover their losses.
The outcomes for not repaying your bridging loan include:
- Late fees (rate depends on a lender)
- Added interest (the same monthly interest you were charged, around 1% per month)
- Default interest rates (1%-2%)
- Account review fee (depends on the lender)
- Your credit score will be negatively marked
- May need to refinance under new terms
- Court action (may apply)
- Liquidation (may apply)
- Repossession of the property (may apply)
What Happens When Your Do Not Pay Your Bridging Loan On Time
Late Fees: If you fail to repay your bridging loan on schedule, the lender will typically begin by charging late payment fees. This could be default interest such as 1%-2% per month or a fixed fee of something like £500 per missed payment. These fees can accumulate quickly and significantly increase the total amount owed.
Account Review: In response to missed payments, the lender may initiate an ‘account review’ which may be charged at £250-£1,000 . This may involve assessing your financial situation, reviewing any security provided for the loan, and exploring potential solutions or repayment plans to resolve the issue.
Legal Action: If the situation remains unresolved, the lender may escalate the matter through legal channels. This can include issuing formal demands for repayment or initiating court proceedings, which could result in additional legal costs and damage to your credit profile.
Liquidation and Repossession: In the most serious cases, failure to repay a bridging loan can lead to the forced sale of assets. This could involve repossession of the property secured against the loan or even liquidation of business assets, depending on the structure of the agreement.
How Does a Regulated and Unregulated Bridging Loan Impact The Outcome If You Cannot Repay?
Regulated bridging loans, which are overseen by the Financial Conduct Authority (FCA), offer more consumer protection because they are secured against a borrower’s primary residence.
If you cannot repay a regulated bridging loan, the lender must follow strict procedures before taking action. This includes offering forbearance where possible, providing clear communication about the borrower’s rights, and ensuring any legal action is fair and proportionate.
Borrowers also have the right to escalate complaints to the Financial Ombudsman Service, offering a layer of support and potential resolution.
By comparison unregulated bridging loans do not fall under the FCA’s rules and this means lenders have more flexibility in how they pursue repayment and may act more kindly or aggressively in the event of default.
Without regulatory oversight, there is less obligation to offer repayment plans or other borrower protections, and legal action or asset repossession can occur on shorter notice.
With repossession, regulated lenders must follow clear rules and pursue alternatives to repossession, such as offering to restructure the loan for the borrower.
Unregulated lenders are not bound by these rules and may enforce repossession immediately, especially if strict timelines and penalties were agreed.
Why Might My Bridging Loan Not Be Repaid On Time?
- Building work delays
- Contractor is insolvent
- Planning permission delays and complications
- Property sale delays or buyer has fallen through
- Awaiting new finance or refinance
- Issues with investors pulling out, solicitors and contractors
- Personal issues – bereavements, disputes, divorces etc
Will My Property Be Repossessed As Soon As I Miss The Repayment Date?
No. For bridging lenders, repossessing the property is usually a last resort, because it requires time, money and effort.
As soon as you miss the repayment date, you will usually have an open conversation with your lender and discuss your situation. It might be that the sale of the property is delayed or you are awaiting new finance.
The lender will charge you a penalty fee or late fee and continue to charge you monthly interest before they move onto repossession of the property.
What Can I Do To Avoid Defaulting On My Bridging Loan?
To avoid missing payments on your bridging loan, there are some things you can do. Certainly, having a longer repayment term could give you the extra breathing space in case you are carrying out heavy refurbishments or relying on the sale of the property as part of your exit. See refurbishment loans.
Most bridging lenders offer a maximum loan term of 18 months, with others offering as long as 36 months – and having this flexibility might be important.
If you are relying on the sale of the property as part of your exit. There are certain ways to prepare for this and speed this up. Having property agents on board early or trying to sell off plans behind the property is complete – can potentially line everything up so you can sell the property well before the final repayment date.
Some experts say that you should give yourself a window of 3-6 months to sell the property once it is complete to give yourself ample time.
It is common to refinance or rebridge your property under new terms if you realise that it is taking much longer. Whilst the interest rates and terms may be far less favourable, this is a common way to extend the loan duration and give yourself much needed flexibility, avoiding the risk of legal action or repossession.
Why It is Important To Speak To The Lender As Soon As You Can
If you are unable to repay your bridging loan on time, it is best to speak to your lender as soon as you can.
In most cases, they should be able to offer you some forbearance and if you explain your situation, they may be able to waive certain fees and penalties. They may also give you some options to refinance or extend your loan and prevent any further action.
Check Your Loan Agreement To Understand What Happens if You Do Not Repay Your Bridging Loan
Each bridging finance lender has different terms, fees and penalties when it comes to missed repayment. It is important to know what you are dealing with and clearly check the terms of your agreement to understand what happens if you are unable to make payment on time.
