1. What a Bridging Loan Is

• A short-term, high-interest loan (usually 1–24 months).
• Designed to “bridge” the gap between buying a property and securing long-term finance or selling it.
• Typically secured against the property itself (so secured lending).

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2. How Property Developers Use It

Scenario 1: Fast Purchase

• You find a property below market value (e.g., auction or distressed sale).
• Traditional mortgages take weeks to arrange; bridging loans can fund the purchase quickly.

Scenario 2: Renovation & Flip

• Buy a property, renovate, and sell it at a profit.
• Bridging loan covers purchase + renovation costs.
• Once sold, the loan is repaid, including interest and fees.

Scenario 3: Portfolio Expansion

• Use bridging loans to buy multiple properties quickly, then refinance into traditional mortgages after improvements or tenant rental income is in place.

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3. Key Features

• Loan-to-Value (LTV): Usually 60–75% for development loans, sometimes higher for purchase-only.
• Interest Rates: Higher than traditional mortgages (typically 0.5–2% per month).
• Fees: Arrangement fees (1–3%) + exit fees sometimes.
• Repayment: Often bullet repayment at the end of term (full sum + interest).

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4. Risks & Considerations

• High cost if the property doesn’t sell quickly.
• If property value drops, you might owe more than it’s worth.
• Strict lender criteria; often need proven development experience or a clear exit strategy.
• Legal and professional fees (solicitors, surveyors) can add up.

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💡 Pro Tip: Bridging loans are best for short-term, high-return property projects where speed matters more than interest costs. For long-term buy-to-let or portfolio growth, traditional mortgages or development loans may be cheaper.