Property finance isn’t one-size-fits-all, particularly in today’s complex UK market.
As a mortgage broker with over 20 years of experience, I’ve seen countless situations where understanding the difference between bridging loans and mortgages has saved clients both money and stress.
Let me share something that might surprise you: these two forms of property finance serve entirely different purposes, yet I often meet clients who think they’re essentially the same thing. They’re not – and knowing the difference could save you thousands of pounds.
Understanding the Fundamentals
Mortgages are used as long-term property finance, usually lasting 25-35 years.
You’ll make monthly payments, build equity gradually, and the lender will scrutinise your income and spending patterns when you apply.
Last year, the average mortgage approval process took 4-6 weeks, according to UK Finance data.
Bridging loans operate very differently.
They’re short-term solutions, usually running from three months to three years.
I recently arranged a bridging loan in just nine days for a client buying at auction – something simply impossible with a standard mortgage.
When you apply, the focus isn’t on long-term affordability but rather on the property’s value and your exit strategy.
So is a Bridging Loan a Mortgage?
Yes, and no!
Both are types of loan and both loans are secured against a property. These are probably the only similarities.
Bridge loans are very short term loans, that don’t have any monthly repayments and don’t rely on your income or affordability. You borrow a lump sum and you pay back the lump sum (plus interest and fees).
Read more: An introduction to bridging loans.
The Payment Structure Difference
Here’s something many people don’t realise about bridging loans: you don’t need to make monthly payments at all.
Instead, the interest rolls up each month and gets paid at the end of the term. This can be incredibly useful in certain situations – property developers, for instance, often prefer this as it helps with cash flow during renovations.
Standard mortgages require monthly payments of either capital and interest or just interest (common with buy-to-let mortgages). The rates are lower than bridging loans, but you’re committing to a much longer term.
This is one of the reasons that bridging lenders aren’t that interested in your income or affordability. These aspects don’t affect the loan or the repayment.
When Bridging Makes Sense
Let me share a recent example.
My client found an incredible deal at auction – a three-bed terrace in Manchester at a great price.
The catch? They had to to complete the purchase (and pay for it) within 28 days.
A mortgage would have taken too long, but we arranged auction bridging finance in two weeks, allowing them to secure the property.
Bridging loans particularly shine in several scenarios:
Property auctions where speed is essential: That 28-day completion deadline won’t wait for a normal mortgage application.
Chain breaks: When your property sale falls through but you don’t want to lose your dream home.
Heavy refurbishment projects: Many properties won’t qualify for a standard mortgage until they’re renovated.
Unmortgageable properties: Sometimes a property needs work before mainstream lenders will consider it.
Read more: What can a bridging loan be used for?
The Application Process
Having arranged both types of finance, I can tell you the application processes differ significantly.
Mortgage applications focus heavily on affordability – expect to provide three months of payslips, bank statements, and proof of deposit.
The lender wants to be sure you can maintain the repayments.
Bridging lenders take a different approach.
While they’ll check you can handle the loan, they’re primarily interested in two things: the property’s value and your exit strategy. I recently had a client approved for a bridging loan with minimal documentation because they had a solid exit strategy and a valuable property as security.
Related reading: How do you pay back a bridging loan?
Understanding Costs
Let’s talk numbers.
Bridging loan monthly interest rates are higher than mortgage rates.
However, the total cost might be lower than you’d expect if you’re borrowing for a short period. For example, a recent client paid more in monthly interest but saved money overall because they only needed the loan for four months while renovating.
The fee structure includes:
- Arrangement fees (typically 2% of the loan amount)
- Valuation fees (based on property value)
- Legal fees
- Exit fees (not all lenders charge these)
Making Smart Choices
After arranging hundreds of property finance deals, I’ve noticed patterns in what makes each option more suitable.
Mind you, there’s rarely a one-size-fits-all answer – it’s about matching the finance to your specific situation.
Mortgages make perfect sense when you’re:
- Planning long-term property ownership
- Having sufficient time for the application process
- Able to demonstrate regular income
- Looking for predictable monthly payments
But here’s something interesting I’ve noticed: sometimes combining both types of finance creates the optimal solution.
For instance, many clients use a bridging loan to secure and renovate a property quickly, then refinance onto a long-term mortgage once the work was complete.
The higher bridging loan interest rate didn’t matter much because the client only needed it for three months.
Exit Strategies: Repaying the debt
Your exit strategy (how you plan on repaying the loan) can make or break a bridging loan application. I’ve seen too many potential deals fall apart because borrowers hadn’t thought this through properly.
A solid exit strategy might involve:
- Selling the property (but be realistic about timelines)
- Refinancing to a mortgage
- Using proceeds from another property sale
- Funding from a business sale or other investment
One of my clients planned to exit their bridging loan through a property sale. When the market slowed unexpectedly, we had already prepared a backup plan to refinance onto a buy-to-let mortgage. This forethought saved them from potential difficulties.
The Current UK Market
The property finance market keeps evolving. Recent Bank of England base rate changes have affected both traditional mortgage and bridging loan rates. However, bridging loan lenders often prove more flexible in their lending criteria, particularly for unique properties or situations.
Property auction purchases have increased significantly since 2020, driving greater demand for quick finance solutions. I’ve noticed more mainstream lenders entering the bridging market, though specialist lenders still often offer the most flexible terms.
Working with a Broker: Adding Value
Finding the right property finance solution isn’t just about comparing rates online.
The market changes constantly, and lenders’ appetites shift with it. A qualified broker brings market-wide access and up-to-date knowledge of lender criteria.
Here’s something most people don’t realise: some of the best bridging loan deals aren’t publicly advertised. Through our relationships with lenders, we can access options that aren’t available directly to borrowers.
In fact, most lenders prefer to get their business from brokers and intermediaries.
For example, we recently arranged a bridging loan at a lower percentage than the lender’s advertised rate because we understood their appetite for certain property types. These relationships and market knowledge can save you significant money.
Making Your Decision
Consider your specific circumstances carefully.
- How quickly do you need the funds?
- What’s your long-term plan for the property?
- Can you wait for a traditional mortgage, or do you need to move faster?
Remember: the lowest interest rate isn’t always the best deal.
Consider the total cost over your intended borrowing period, including all fees and charges. Factor in the flexibility you might need – paying a bit more for the right type of finance can save money in the long run.
Every property finance journey starts with understanding your options.
Our team of experienced brokers can help you explore the solutions that best fit your circumstances. We’ll explain everything clearly, help you understand the pros and cons of each option, and guide you through the application process.
Want to discuss your property finance needs?
Contact our team for a no-obligation conversation about your situation.