Bridging loans are expensive. But if you need to move fast on a deal, they can unlock opportunities that are worth far more than the cost of the loan.
Most bridging lenders quote a monthly rate, typically 0.65% to 1.2% per month. On a £150,000 bridging loan at 0.85% a month over six months, the interest is £150,000 times 0.85% times 6, which equals £7,650. Add an arrangement fee of 1.5% to 2%, which is another £2,250 to £3,000. Your total cost for six months of bridging finance is roughly £10,000.
The key number is not the interest rate. It is the total cost relative to the profit you expect to make. If you are buying a BMV property at £150,000 that is worth £200,000, your gross profit is £50,000. The £10,000 bridging cost is 20% of your profit. That is manageable.
But if your gross profit is only £20,000, the bridging cost wipes out half of it. Suddenly the deal does not work.
Bridging is a tool, not a strategy. Use it when the numbers are clear. The longer you hold the loan, the more it costs. Every month you are on bridging finance, your profit shrinks.
The formula
Interest = Loan × Annual Rate × (Term Months / 12)
Why this matters
Bridging loans are expensive but they unlock deals. Calculate the total monthly cost before you commit. If the bridging costs eat more than 20% of your expected profit, the deal is too tight.
Property maths is not optional. If you want someone to run the numbers with you, Xelox Properties can help. We cover Portsmouth, Hampshire, and the South Coast.