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A bridge is defined by its exit, not its rate. The three exits, open versus closed, and what a two hundred thousand pound bridge actually costs.
A full guide hub for this series sits at Bridging Loans for UK Property Developers, with the speed, cost and exit questions answered in one place.
The Construction Capital podcast is the UK property development market, decoded. Hosted by Georgina, each episode breaks down a specific UK location or finance topic using proprietary transaction data, live regeneration pipelines, and the real-world lender dynamics shaping development finance today. Published by Construction Capital, an independent capital advisory brokerage sourcing terms from over 100 lenders across development finance, bridging, mezzanine, and equity. For developers, investors, and brokers who want the numbers that actually matter.
Welcome to the Construction and Capital podcast. I'm Georgina, and this is our episode on bridging loans. I want to start with the sentence that governs everything else you are about to hear. A bridge is defined by its exit, not its rate. The usual note first. Construction Capital is a trading name of Lenzi Consulting Limited. We are a commercial finance broker and introducer, we are not a lender, and we are not authorised by the Financial Conduct Authority. Where a deal is a regulated activity, we arrange it through lenders who hold the relevant permissions. Every figure is indicative and never a formal offer. Most people come to us leading with the rate. Our indicative range is 0.55 to 1.0% a month, and it is natural to want the bottom of it. But that is the second question. The first, the one a lender asks before anything else, is how the loan gets repaid. A bridge is short money, 1 to 18 months. and it has no natural end of its own. It ends because something specific happens. If you cannot describe that something in a sentence with evidence behind it, you do not have a deal yet, whatever rate anybody quotes you. There are three exits and it is worth knowing which one you are on. The first is sale. You are going to sell the property or another property and repay from the proceeds. What a lender wants here is evidence that the price is real and the timescale is honest. That means comparable sales, an agent appraisal, a marketing plan and a realistic view of how long the property sits before it goes under offer. The failure mode is optimism. People price at the top of the range take six months to accept that the market disagrees and then run out of term with the property still unsold. The second is refinance. You are going on to a term product afterwards. A buy to let mortgage. a commercial mortgage, a development facility. The critical point is that you have to satisfy the criteria of the exit lender on day one, not on the day you eventually apply. If the plan is a commercial mortgage that needs rental income comfortably covering the payment, then the works you are doing with the bridge have to produce a tenanted building that actually clears that test. Working backwards from those criteria before you draw the bridge is the most useful hour you can spend on the deal. The third is incoming capital. Money is arriving from somewhere else. Another sale completing, an investment maturing, funds released from an estate. This is the exit lender scrutinised hardest because it is the most easily asserted and least easily proven. Documents, not intentions. A contract, a completion statement, a written confirmation of the timing. That leads into open and closed. A closed bridge has a fixed contracted repayment date, typically because contracts are already exchanged on the sale that repays it. An open bridge has a plan but not a contract. Closed price is better because the lender can see the end of it. Open costs more. If you are near that boundary, waiting until contracts exchange before you draw can genuinely move your rate. Now the money, because there are three ways interest gets handled on a bridge and they do very different things to the cash you receive. Retained interest means the lender holds back the interest for the whole term out of the advance at the start. You receive less on day one and you pay nothing month to month. Rolled up means the interest accrues and is settled in full when you redeem. You receive more on day one and repay a larger figure at the end. Service means you pay the interest monthly out of income. You receive the most on day one and repay the smallest figure at the end. but you need provable income to cover those payments, which rules it out for a lot of empty and unimproved property. Let me put numbers on that. Take a £200,000 bridge at 0.85% a month over 12 months with an arrangement fee at the top of our 1-2% range, so £4,000. Monthly interest is £1,700 and £20,400 across the year. On a retained facility, the interest and the fee both come out of the front. £200,000 less £20,400 less £4,000 leaves about £175,600 landing in your account. If your purchase needs more than that, you have a shortfall you did not see coming. On a rolled-up facility, you receive around £196,000 after the fee and you repay £220,400 at the end. On a serviced facility, you receive that same £196,000, pay £1,700 a month and repay the original £200,000. Same loan, same rate, very different day one cash. And one more question worth asking on a retained facility. If you redeem early, is the unused retained interest refunded? On a rolled up loan, that answer is automatic because if you exit at six months, you have accrued £10,200 rather than £20,400. On retained, ask and get it in writing. While we are on numbers, the rate range matters more than it looks. On that same £200,000, 0.55% a month is £1,100 a month. 1.0% is £2,000. Over a year, that is a difference of £10,800. What moves you along that range is the quality of the security, the loan to value. above all the strength of the exit. Which is where we came in? On loan to value our indicative figures are up to 75% on residential and 65 to 70% on commercial. Note that those are calculated against the valuation the lender obtains, not the price you paid. Auction deserves a moment of its own because it is where bridging earns its reputation. You bid, the hammer falls and you are contractually bound with a completion deadline that is commonly 28 days. A mainstream mortgage will not move at that speed. The mistake is treating the finance as something to organise after you win. Have the facility agreed in principle before the auction, have the legal pack reviewed before you bid, have your solicitor briefed and waiting, and have the valuation ready to instruct the moment the hammer comes down. 28 days is comfortable when the work was done in advance and brutal when it was not. Finally, the regulated line, and this one matters. Where a loan is secured against a property that you or an immediate family member live in or intend to live in, that is a regulated activity. We are not authorised by the Financial Conduct Authority, so where that is the case, we arrange it through lenders who hold the relevant permissions rather than doing it ourselves. Bridges on investment property, on commercial property and on purchases made through a company, are generally unregulated. It is worth establishing which side of that line you are on, because it changes who you deal with. So, bridging. Lead with the exit and evidence it properly. Know whether you are open or closed, because it is priced into your rate. Work out what the interest structure does to your day one cash before you commit, and if there is an auction involved, do the finance work before the hammer. The full detail is at constructioncapital.co.uk slash services slash bridging loans. The written guides there are by Matt Lenzie. Thanks for listening. I'm Georgina, and this has been the Construction and Capital podcast.