2024 saw a steady increase in investment into the European real estate market, with CBRE reporting a 23% increase on 2023. However, reports show that transactions took significantly longer to complete, particularly where financing was involved, than before the pandemic. This has also been our experience. 2025 has started positively with investors actively targeting the UK market but against the backdrop of protracted timetables, some investors are looking at alternative financing to bridge the timing (as well as planning) gap. In this article we look at the role of bridging finance in the real estate finance market.

What are bridging loans?

Bridging loans offer a short-term financing solution specifically designed for property investors who need quick access to funds. They serve as a financial bridge, covering the immediate cash required to complete a property acquisition or the time required to obtain planning permission for development until capital becomes available from another source. 

Often referred to as interim finance, these loans have gained popularity in real estate transactions due to their ability to address urgent liquidity needs. Typically, borrowers use bridging loans as a temporary measure while waiting to secure long-term financing. These loans are typically documented by way of short standard form agreements and are secured by collateral, commonly provided in the form of a debenture or a legal charge on the property or land. With maturities generally under one or two years, bridging loans come with higher interest rates and notable arrangement and exit fees, but with greater flexibility and faster transaction turnaround. 

Why do Borrowers use bridging finance?

Bridging finance has always had a role in the real estate market, but historically for shorter periods or where other funding solutions were not available.

Borrowers choose bridging loans because they offer rapid access to capital in competitive markets and for time sensitive transactions such as property purchases, auctions, and renovation projects.

In recent years many traditional banks and building societies have adopted more rigorous credit processes and stricter lending policies following the financial crisis. Banks like Lloyds, Barclays, HSBC and Santander now require a much higher level of due diligence and extensive documentation before funding a transaction. Post pandemic, many lenders are also now unwilling to finance speculative deals like projects without secured presales or confirmed rental agreements, and some demand that full planning permission is obtained before any funds are provided. With traditional lenders often unwilling to take on planning risk or too slow to secure funding, developers are increasingly turning to bridging finance as their primary option rather than just using it as a temporary solution. 

Who are the typical bridge lenders and what are their typical terms?

The market for bridging finance is served by a diverse range of lenders. With a reduction in traditional banks and building societies offering these loans to corporates, a growing number of alternative finance providers now offer bridge funding solutions. These specialised lenders cater to both corporate and individual borrowers by providing loans that can range from a few thousand pounds to multi-million-pound facilities. The flexibility in loan amounts means that small investors and large-scale property developers alike can find a product that suits their needs.

Bridging loans are generally short term, with typical durations spanning from one to twenty-four months and many deals clustering around nine to twelve months for corporate borrowers.  However, this is changing and we are seeing some lenders offer up to 36 months, particularly for development projects where planning permission is being sought. Lenders charge interest on a monthly basis with rates that can vary significantly depending on the risk profile of the transaction and the exit strategy in place. For example, some lenders may offer monthly interest rates as low as 0.45 percent while others may charge up to 2.00 percent per month. In addition, penalty or default interest rates tend to be higher to compensate for the increased risk if the borrower does not meet repayment obligations on time.

Fee structures for these loans are also designed to reflect the swift access to funds and the higher risk involved. Borrowers may be subject to arrangement fees that typically fall in the range of 1 percent to 3 percent of the total loan amount. Additional fees may apply if the borrower extends the loan period or wants to convert the bridging facility into longer term financing. Lenders generally require a clear exit strategy and adequate collateral, which could include a legal charge over the property or other assets, to secure the loan.

Loan to value ratios are typically between 50%-75%. The key variables of any bridge loan will depend on:

1. the circumstances of each borrower;
2. the nature of the proposed scheme;
3. the nature of the asset being acquired or refinanced;
4. whether it is an income-generating asset or whether interest needs to be capitalised throughout the term; and
5. the proposed duration of the loan. 

Summary

The evolving landscape of bridging finance means that borrowers now have access to a wider range of funding options. This flexibility comes with a trade off in terms of higher interest rates and fees compared to traditional long term financing, but it remains a vital solution in situations where immediate capital is essential to secure a property, complete a transaction or to get a project to a state where longer-term finance is more readily available.