How the SONIA Forward Curve Affects Bridging Loan Rates

Let’s say you’re considering a bridging loan for a property deal. You get a few quotes, but the rates vary more than expected. Why?

The truth is, behind every bridging loan rate is a market prediction — specifically, where interest rates are expected to head next. That outlook is captured in something called the SONIA forward curve. It might sound technical, but it plays a very real role in determining how much you pay.

If you understand how lenders use it, you can use it to your advantage: negotiating better deals, choosing the right time to borrow, and potentially saving thousands.

You won’t see these forward rates on a term sheet, but they’re central to how bridging lenders price loans. And understanding how future rate expectations influence lenders can give you an edge when negotiating or deciding when to borrow.

If you want to see what the market currently expects, take a look at the SONIA forward curve published by Chatham Financial. The line to watch is the 3-month compounded SONIA, which gives a good indication of how wholesale funding costs are expected to evolve.

Most bridging lenders don’t use their own money. They borrow funds themselves, often from institutions, and then lend that money out to borrowers at a margin. That borrowing is usually tied to either the Bank of England base rate or SONIA (the Sterling Overnight Index Average).

Because their cost of funds is floating but their loan rates are fixed, lenders take on risk. If their funding cost rises after your loan is agreed, their margin shrinks. In some cases, they could even lose money on the deal.

That’s why they look ahead. They rely on SONIA rate forecasts (the forward curve) to get a sense of where their costs are heading and price your loan accordingly.

If rates are expected to fall, they may offer sharper pricing today. If they’re forecast to rise, they’ll build in more margin to protect themselves.

This kind of forecasting doesn’t just influence one lender. It shapes pricing across the whole market.

Here’s what that looks like in the real world.

Avid Finance recently worked with a property developer converting a flat into an HMO. The lender’s published bridging rate at the time was 0.79% per month. But Avid had tracked a 60 basis point drop in the 6-month SONIA forward rate — and knew funding costs were easing.

That insight gave us negotiating power. We approached the most appropriate lender for the deal and secured a rate of just 0.73% — well below their advertised terms.

• £450,000 refurbishment facility secured
• Terms issued within 48 hours of the client’s first enquiry
• Entire process handled directly by Avid — no third-party delays

This is exactly why understanding forward rates matters. It’s not just theory — it’s what helps us get better outcomes for our clients.

Over the past 18 months, forward rate projections have been incredibly sensitive to wider economic shifts:

• Central banks moved quickly to tackle inflation
• Markets swung between expecting cuts and fearing long-term hikes
• SONIA forecasts jumped around — even when the base rate stayed steady

For borrowers, this volatility means timing matters more than ever. A shift in expectations can move rates, even without an official policy change.

It depends — and here’s why.

Forward rates reflect market opinion, not guarantees. They move fast. If inflation stays high or global conditions worsen, sentiment can swing — and lenders will quickly adjust.

• If forward rates rise, loan pricing will harden
• Even without a change in the base rate, deals can become more expensive
• Waiting can work — but it also carries risk

The smart move? Monitor the curve, speak to your broker early, and act when conditions favour you.

Want to stay ahead of the curve? Keep your eye on these signals:

Key Market Indicators:

• Bank of England announcements – even minor language shifts matter
• Inflation data – continued pressure here pushes forecasts higher
• Global moves – US and EU central banks influence UK sentiment

Practical Tips:

• Speak to your broker before you’re ready to act — not after
• Look at both fixed and floating rates — timing matters
• Don’t ignore the forward curve — it’s a powerful signal, even if you’re not in finance

The SONIA forward curve might sound abstract — but it has a real and immediate effect on the rates you’ll be offered.

Understanding it isn’t just for economists. It’s for property investors who want to make sharper, better-informed decisions.

At Avid Finance, we use this knowledge daily. It helps us identify the right lenders, negotiate better deals, and move fast when the conditions are right.

We deal directly with lenders, which means you benefit from more than just market access — you benefit from market insight.

Want to see how forward rates could affect your next deal?

Call Dan Scott on 020 3920 6920 or get in touch with Avid Finance today.