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In this comprehensive guide, we'll explore the hidden fees associated with bridging loans, ensuring you budget accurately and avoid unpleasant surprises.
Bridging loans are short-term financing solutions typically lasting between 3 to 18 months. They are popular among property investors who need rapid access to funds to secure properties at auction or fund refurbishments before refinancing or selling.
However, while bridging loans are known for speed and convenience, they also come with several costs beyond the headline interest rate.
Below are the most common hidden costs investors encounter when securing bridging finance:
Arrangement (or facility) fees are typically 1-2% of the total loan amount. While common, many borrowers underestimate their impact.
Example:
On a £200,000 bridging loan, a 2% arrangement fee adds £4,000 upfront to your total borrowing costs.
Bridging lenders require an independent valuation of the property, typically costing between £500 and £2,000 depending on property type and value.
Example:
A residential property valuation could cost around £750, while a commercial or larger property valuation may exceed £1,500.
Some lenders charge an exit fee—typically around 1%—upon repayment of the bridging loan. Always confirm this cost in advance.
Example:
Repaying a £300,000 loan with a 1% exit fee would cost an additional £3,000 at the end of the loan term.
You are usually responsible for both your own and the lender’s legal costs, adding an extra £1,000–£3,000 to your budget.
Example:
Legal fees on a straightforward bridging deal could total approximately £2,000–£2,500.
If you use a specialist bridging broker, their fee typically ranges between 1–2% of the loan amount.
If your exit strategy is delayed (such as refinancing taking longer than expected), lenders charge substantial default or extension fees.
Example:
A one-month extension on a £250,000 loan at an additional 2% per month equates to an extra £5,000 cost.
Many bridging loans "roll up" interest payments into the final repayment amount, resulting in interest charged on interest, increasing overall repayment costs.
Example:
A £200,000 bridging loan at 0.8% per month for 12 months compounds to approximately £220,000, including interest.
Scenario: An investor secures a bridging loan of £250,000 at a quoted monthly interest rate of 0.8% for a term of 12 months.
Important: Without accounting for these additional costs, an investor might significantly underestimate the true cost of bridging finance.
Shop around or work with experienced brokers who negotiate competitive terms.
Insist on a clear breakdown of all fees before agreeing to a bridging loan.
Avoid costly extensions by ensuring your refinancing or sale strategy is robust and achievable.
Check terms for default penalties, extension fees, and exit fees closely before signing agreements.
Investor Profile:
James, a property investor from Leeds.
Situation:
James secured a bridging loan of £300,000 at 0.75% per month to buy an auction property. Initially, he only considered the monthly interest payments.
Outcome:
After consulting with Auction Finance, James realised he needed to account for additional costs (arrangement fees, valuation, legal, broker fees). This awareness allowed him to adjust his investment strategy, refinancing promptly after six months to a cheaper buy-to-let mortgage, significantly reducing costs.
A: Yes, bridging loans typically carry higher interest rates and additional fees due to their short-term, high-risk nature.
A: Some lenders may negotiate these fees. Working with a specialist bridging broker can help reduce or eliminate certain costs.
A: Not always, but it’s common. Interest can be serviced monthly if preferred, reducing the final repayment figure.
At Auction Finance, we offer clear, transparent advice on bridging loans. Our expert team helps investors understand and mitigate hidden costs, ensuring your finances align with your investment strategy.
(C) 2025 Auction Finance is a trading name of Mortgage Knight Ltd