Bridging Loan Costs: A Worked Example for Expats

A bridging loan is quoted as a monthly rate, which makes it look cheap and hard to compare with a mortgage. The real cost is the interest plus a set of fees, for as long as the loan actually runs. This guide works through one example from start to finish, then shows what a three-month delay does to the bill. It builds on our page on bridging loans for expats.

This guide is general information, not a quote or a recommendation. Rates and fees vary by lender, property and borrower, and the figures below are invented to show the method.

Calculator and door key, representing bridging loan costs

The short answer

Interest is usually quoted per month, and is often rolled up and repaid with the capital at the end.
Fees, such as arrangement, valuation, legal and sometimes exit fees, can be a large share of the total cost.
The longer the loan runs, the more it costs, so a firm exit matters more than the headline rate.
Always ask for the total cost in pounds, not just the rate.

The loan in this example

You borrow £300,000 against a UK property worth £500,000, which is 60% of its value. The lender quotes 0.85% a month with interest rolled up, and you plan to repay in nine months from the sale of another property.

Item	Assumption
Loan	£300,000
Property value	£500,000 (60% loan-to-value)
Interest rate	0.85% a month, rolled up
Term	9 months
Arrangement fee	2% (£6,000)
Valuation fee	£1,200
Legal costs	£2,500
Exit fee	1% (£3,000)

Step 1: the interest

At 0.85% a month, interest on £300,000 is £2,550 a month. Over nine months that is £22,950. Quoted as a yearly rate, 0.85% a month is 10.2% before fees. Some lenders add the interest to the loan each month, so interest is charged on interest. That would make the true figure a little higher than this simple calculation, so ask which method applies.

Step 2: the fees

The fees come to £6,000 plus £1,200 plus £2,500 plus £3,000, which is £12,700. Some lenders deduct the arrangement fee from the advance, so you receive less than £300,000 on day one but still repay £300,000 plus interest. Check the net amount you will actually receive, because that is the money you can spend.

The total

Interest of £22,950 plus fees of £12,700 is £35,650. That is 11.9% of the loan for nine months, or about £3,961 for every month the loan runs once the fees are spread across it. The monthly rate on its own, 0.85%, hides most of this.

If the exit is three months late

Suppose the sale you were relying on falls through, and you need three more months. Interest for the extra quarter is £2,550 times three, or £7,650. If the lender charges an extension fee of 0.5%, that adds £1,500. The extra £9,150 takes the total to £44,800, about 26% more than the original £35,650. The loan did not become more expensive each month. It simply ran for longer, which is why a lender’s extension terms matter as much as its headline rate.

A shorter loan costs more per month

Now run the same loan for four months instead of nine. Interest is £2,550 times four, or £10,200, and the fees are unchanged at £12,700, so the total is £22,900. That is 7.6% of the loan, but £5,725 for every month it runs, against £3,961 on the nine-month version. Fees are charged once, so on a short loan they are spread over fewer months. A short bridge is cheaper in total, but not always cheaper per month.

Reading a quote line by line

A good quote shows the loan amount, the net advance, the interest rate and how it is charged, every fee and the cost of an extension. If any of these is missing, ask for it in writing. Put two quotes side by side and compare the total for the same term, then again for a term three months longer, because the cheaper quote on paper can become the dearer one if your exit slips.

Why headline rates mislead

Monthly against yearly. A monthly rate sounds small. Multiply it by twelve to compare it with other borrowing.
Front-loaded fees. Fees are charged whether the loan runs for two months or twelve, so a short loan carries a heavier share of fees.
Rolled-up interest. Interest that is added to the balance can grow the debt before you repay it.
Different fee structures. One lender may charge a higher rate and lower fees, another the reverse. Only the total shows which is cheaper for your term.

Costs people forget

A broker fee, if one applies, and how it is paid.
Your own solicitor’s fees as well as the lender’s.
Insurance on the property.
A minimum interest period, which some lenders apply even if you repay early.
Bank and currency conversion charges on money sent from abroad.
Stamp duty and refurbishment costs, which the loan does not cover.

Ways to keep the cost down

Borrow only what you need, since interest and some fees scale with the loan.
Plan a firm exit with a margin for delay, so you are not forced into an extension.
Ask for quotes that show the total cost over your expected term and over a longer one.
Ask whether the arrangement fee can be reduced or whether interest can be paid monthly.
Line up a second exit, such as a refinance, in case the first one slips.

Questions to ask before you sign

What is the total cost in pounds for my term, and for a term three months longer?
Is the interest simple or compounded, and is it rolled up?
Is the arrangement fee deducted from the advance?
Is there an exit fee or minimum interest period?
What does an extension cost, and what must I show to get one?
What happens if I cannot repay on the due date?

Frequently asked questions

How much does a bridging loan cost?

It depends on the lender, the property and the term. Interest is often quoted at around 0.55% to 1.5% a month, plus arrangement, valuation, legal and sometimes exit fees. Ask for the total in pounds.

How is bridging loan interest charged?

Usually monthly. It can be paid each month, or rolled up and repaid with the capital at the end. Ask whether it compounds.

Are there fees on top of the interest?

Yes. Expect an arrangement fee, a valuation fee and legal costs, and sometimes an exit fee and broker fee.

What if I repay early?

Some lenders charge a minimum interest period or an exit fee, so repaying early may not cut the cost as much as you expect. Check the terms.

What if my exit is delayed?

You may pay extension fees and more interest. If you cannot repay at all, the lender can enforce its charge on the property.

How do I compare bridging loans?

Compare the total cost over the same term, including fees, the net amount you receive and the cost of an extension.

This article is for information only and is not financial advice or a recommendation. Bridging finance is often unregulated, costs vary and the property may be repossessed if the loan is not repaid. Take advice before you borrow.

Bridging Loan Costs: A Worked Example for UK Property Buyers Abroad