When Sarah first asked herself, “What are the Risks of Bridging Finance?” She was facing a tight deadline. A property purchase depended on speed, and a traditional mortgage would not complete in time. Bridging finance seemed like the perfect solution. What Sarah soon learned was that while bridging loans can solve timing problems, they also carry risks that must be understood before proceeding. Knowing these risks upfront helps borrowers make informed and responsible decisions.
Understanding Bridging Finance
Bridging finance is a short-term lending solution designed to bridge a funding gap. It is commonly used for property purchases, auction buys, refurbishments, or when waiting for a property sale to complete. Because these loans are fast and flexible, they are classed as specialist lending.
You can learn more about how these loans work on our Bridging Loan page.
The Main Risks When Approaching Bridging Finance
Higher Costs
One of the primary risks of bridging finance is cost. Interest rates are usually higher than those for standard mortgages, and fees such as arrangement, valuation, and legal costs may apply. Because interest is often charged monthly, delays can significantly increase the overall cost.
Borrowers should ensure they understand the total cost of borrowing before proceeding.
Exit Strategy Risk
Every bridging loan requires a clearly defined exit strategy. This is how the loan will be repaid, often through a property sale or remortgage. If the exit strategy fails or takes longer than expected, borrowers may face extension fees or higher interest costs.
An unclear or unrealistic exit strategy is one of the most common reasons bridging loans become problematic.
Time Pressure
Bridging finance is designed for short terms, often between six and twelve months. If refurbishment work, planning permission, or property sales are delayed, time pressure can increase financial strain.
Careful planning and realistic timelines are essential.
Property Valuation Risk
The loan amount offered is based on the property valuation. If the valuation is lower than expected, borrowers may need to contribute more funds themselves or adjust their plans. This can impact completion timelines and affordability.
Repossession Risk
As with any loan secured against property, failure to meet repayment terms can lead to repossession. Bridging finance is not suitable for long-term borrowing and should only be used where repayment is realistic and affordable.
Your property may be repossessed if you do not keep up repayments on a loan secured against it.
Considering Alternatives to Bridging Finance
In some cases, bridging finance may not be the most suitable option. Depending on circumstances, alternative specialist products may be worth exploring.
For example, a Second Charge Mortgage can allow homeowners to raise funds without replacing their existing mortgage:
Speaking to an experienced broker can help determine which option best fits your needs.
Why Advice Matters
Bridging finance should always be arranged with advice from a regulated mortgage broker. A broker will assess affordability, explain risks clearly, and ensure the loan aligns with your exit strategy.
Connect Mortgages works with a wide range of specialist lenders to help borrowers understand their options and responsibilities before proceeding.
Connect Group and Wider Support
Connect Mortgages is part of the Connect Group. Connect Experts and Connect for intermediaries are trading divisions of Connect IFA Ltd.
Mortgage professionals looking for support, compliance, and access to specialist lenders can Join Our Mortgage Network. Consumers seeking regulated advice from qualified professionals can “Find Mortgage Advisers” across the UK.
Understanding the risks of approaching bridging finance is essential before committing to this type of borrowing. When used correctly, bridging loans can provide valuable short-term solutions. When used without planning or advice, they can create avoidable financial pressure.
Always seek regulated advice and ensure any decision is based on your individual circumstances and affordability.
Thank you for reading our “What Are the Risks of Bridging Finance? | Bridging Loans” publication. Stay “Connect“-ed for more updates soon!
