Bridging Loan Alternatives – What Are My Options?
Bridging loans are a well-known way of raising short-term finance, but they’re not always the cheapest or most appropriate choice. They work well in some situations, but in many cases there are better, more cost-effective alternatives.
At Avid Finance, we regularly help clients weigh up bridging against other products. This article explains what a bridging loan is, when it makes sense, and the main alternatives. We also look at how the costs compare, provide a decision-making framework, and share real-world scenarios.
What Is a Bridging Loan?
A bridging loan is a short-term facility secured against property or land. It is designed to fill a funding gap until you sell, refinance, or otherwise exit.
The main appeal is speed. Bridging lenders can provide funds in days or weeks, whereas mainstream mortgages might take months. Terms are short, usually between 6 and 18 months, and lenders always require a clear exit plan.
The trade-off is cost. Interest is typically charged monthly (0.6% to 1.2%), and most lenders apply an arrangement fee of 1% to 2%.
When Does a Bridging Loan Make Sense?
Bridging finance is most useful when timing is critical. Common uses include:
- Buying at auction where completion is due within 28 days
- Breaking a property chain to secure a purchase before selling another
- Purchasing an unmortgageable property that requires works before a mainstream lender will step in
- Acting quickly on an opportunity where cost is less important than speed
Alternatives to Bridging Loans
While bridging loans are useful, they are not the only option. Depending on your project, these alternatives may be more cost-effective or better aligned with your goals.
1. Development Finance
Development finance is designed for ground-up builds and large conversion projects. Unlike bridging, funds are released in stages as the build progresses.
This staged drawdown means you only pay interest on the money you have drawn. Terms are longer too, often 12 to 36 months, and lenders can provide larger facilities for multi-unit schemes.
2. Refurbishment Finance
Refurbishment finance is tailored for light to medium works. It is faster to arrange than development finance and less intrusive in terms of monitoring.
It is often chosen instead of bridging when a property is unmortgageable but only needs light works to qualify for a long-term mortgage.
3. Unsecured Personal Loans
Unsecured personal loans can be a practical alternative for smaller funding needs. They do not require property security, and approval is based on credit profile.
They can be arranged quickly — sometimes within days — making them suitable for deposits or modest refurbishments where a full bridging facility would be excessive.
Pitfall: Loan sizes are capped (often £25,000 to £50,000), and interest rates can be higher than secured lending. High APRs can catch people out compared with property-backed borrowing.
4. Savings, Family and Friends
Using personal savings or private lending from family and friends can be the lowest-cost and most flexible option. There are no arrangement fees, and repayment terms can be agreed directly.
This tends to work best where the funding gap is relatively small and timing is tight, but you want to avoid the costs of formal lending.
5. Remortgage
If you already own property with equity, remortgaging can release funds for new projects.
Rates are closer to mainstream mortgages (often 4% to 7%), and terms are much longer than bridging. However, remortgaging takes more time and may trigger early repayment charges if you are tied into an existing deal.
This option is best used when you do not need funds immediately and are prepared for a slower process in exchange for lower costs.
6. Second Charge Mortgage
A second charge (or secured loan) allows you to raise capital without disturbing your existing mortgage.
It can be arranged faster than a full remortgage and allows you to keep your current mortgage deal intact. This is often chosen instead of bridging when you already own property with equity and need funds quickly without refinancing your main loan.
7. Buy To Let Mortgage
If your long-term goal is to hold a property as a rental, a buy to let (BTL) mortgage is usually the most cost-effective option.
Rates are far lower than bridging, terms can be up to 30 years, and lenders will often advance up to 75% loan to value. The limitation is that lenders will not fund properties that are not lettable at purchase, so bridging or refurbishment finance may be required first.
See also: Switching to a Buy to Let Mortgage – What You Need to Know.
8. Commercial Mortgage
For semi-commercial or fully commercial property, a commercial mortgage is usually more suitable than bridging.
Terms can extend to 25 years, and rates are lower than short-term finance. Affordability is tested against rental income or business profits.
Cost Comparison: Bridging vs Alternatives
Comparing bridging against longer-term products shows how much costs can differ.
For example, a £200,000 bridge at 0.9% per month for 12 months would accrue £21,600 interest, plus a 2% arrangement fee of £4,000. That is a total of £25,600.
By contrast, a £200,000 buy to let mortgage at 6% over the same period would cost around £12,000. Even with fees, the long-term mortgage is far cheaper. Development finance often sits between the two, with similar fees to bridging but lower interest thanks to staged drawdowns.
Useful tool: GOV.UK Stamp Duty calculator.
Real-World Scenarios
- Auction purchase: Bridging may be the only way to hit the deadline, but refinancing quickly avoids long-term cost
- Light refurbishment: A refurbishment loan allows you to modernise and refinance onto a BTL mortgage
- Ground-up development: Development finance with staged drawdowns keeps costs manageable
- Equity release: A second charge mortgage provides funds without disturbing a valuable low-rate mortgage
Frequently Asked Questions
Final Thoughts
Bridging loans remain a valuable tool when speed matters, but they are not always the most cost-effective choice. Alternatives such as refurbishment loans, development finance, second charges, or long-term mortgages can often save money and reduce risk.
At Avid Finance, we help property professionals compare all the options, model scenarios, and choose the right facility for their project.
Call Dan Scott on 020 3920 6920 or get in touch with Avid Finance today.