Bridging Calculator

Gross vs Net Loan: What You Actually Receive

The biggest misconception about bridging finance is the difference between gross loan and net loan. Most clients think they'll receive the full loan amount, but this is not the case.

How it works:

Lenders quote bridging loans as a percentage of property value (typically up to 75% gross LTV). However, this is the gross loan amount - not what you actually receive.

Example:

• Property value: £200,000
• Gross loan at 75% LTV: £150,000
• Less arrangement fee (2%): -£3,000
• Less retained interest (12 months at 0.95%): -£17,100
• Net loan you actually receive: £129,900

That's over £20,000 less than the gross loan! This is critical when budgeting for your purchase, as you need to account for this difference.

Why this matters: If you're buying a £200,000 property and think a 75% loan gives you £150,000, you'll be £20,100 short before even paying for valuation, legal fees, and any refurbishment works.

Always calculate based on the net loan you'll receive, not the gross amount lenders advertise. This is fundamentally different from standard mortgages where you receive the full loan amount.

The Real Cost of Bridging Finance

Bridging finance is more expensive than clients expect. Understanding the true cost is essential before committing.

Interest rates (monthly, not annual):

• Best rates: 0.75% per month
• Average rates: 0.95% per month
• Higher rates: up to 1.2% per month

The monthly shock: A 0.95% monthly rate equals 11.4% annually - significantly higher than standard mortgages. On a £150,000 loan over 12 months, that's £17,100 in interest alone.

Additional costs clients often forget:

• Arrangement fee: Typically 2% of the gross loan (£3,000 on £150,000)
• Valuation fee: Higher and faster turnaround than normal purchases (£500-£2,000+)
• Legal fees: Higher due to speed required (£1,500-£3,000+)
• Title insurance: Lender requirement
• Fund transfer fees: Administrative costs
• Broker fee: If using a broker (typically 1-2%)

Speed vs cost trade-off: Lenders who can complete in one week typically charge higher rates than those taking 3-4 weeks. Balance urgency against cost.

Why it's expensive: You're paying a premium for speed and flexibility. Bridging lenders can approve and fund deals that high street banks won't touch - properties needing work, auction purchases, or applicants with credit issues. This convenience and flexibility comes at a cost.

These costs will either be deducted from your gross loan or paid as additional expenses, depending on the lender. Budget for the total project cost, not just the property price.

When to Use Bridging Finance (And When Not To)

Bridging finance solves specific problems where traditional mortgages can't help. Understanding when it's appropriate is crucial.

Common uses for bridging finance:

• Auction purchases: Need to complete within 28 days - mortgages can't move this fast
• Property flipping: Buy, refurbish quickly, and sell
• Refurb-to-refinance: Purchase and renovate before refinancing to a BTL mortgage
• Development projects: Short-term funding until project completes
• Chain breaks: Buy new property before selling existing one
• Uninhabitable properties: When property needs work before it can be mortgaged

Why mortgages won't work: High street lenders typically won't lend on properties that aren't habitable, require structural work, or are being purchased at auction. Bridging finance fills this gap.

Exit strategy is critical: Before taking bridging finance, you MUST have a clear plan for repayment:

• Selling: Are you confident the property will sell within the term?
• Refinancing: Have you confirmed a mortgage lender will accept the property after works? Can you afford the mortgage payments?

Refurbishment funding: Most lenders don't fund refurbishment works. You typically need separate cash available for renovations. Light refurbishment (cosmetic, no planning permission) is easier to access than heavy refurbishment (extensions, structural changes), which usually requires proven experience.

Consider a longer term: Build in a safety buffer when choosing your loan term. Lenders rarely extend bridging terms, and defaulting is expensive and damaging. Adding a few extra months provides valuable breathing room.

When bridging is a BAD idea:

• You don't have enough total funds to complete the project (purchase + works + fees)
• No confirmed exit strategy - hoping to "figure it out later"
• Can't afford to service monthly interest (if serviced)
• Counting on property market growth to make the numbers work

Bridging is easier to get than a mortgage, but refinancing afterward is the harder part. Make sure you can actually get a mortgage at the end before you start.

Retained vs Serviced Interest Explained

Bridging finance offers two ways to handle interest payments. Understanding the difference impacts how much you receive and your monthly commitments.

Retained Interest (most common):

The total interest for the full loan term is calculated upfront and deducted from the gross loan. You receive less money initially but make no monthly payments.

Example:

• Gross loan: £150,000
• 12 months at 0.95% monthly = £17,100 interest
• Arrangement fee: £3,000
• Net loan received: £129,900
• Monthly payments: £0
• Repay at exit: £150,000

Serviced Interest:

You pay interest monthly and receive more money upfront. However, qualification depends on your personal income and expenditure showing you can afford monthly payments.

Same example with serviced:

• Gross loan: £150,000
• Arrangement fee: £3,000
• Net loan received: £147,000
• Monthly payment: £1,425 (£150,000 × 0.95%)
• Total interest over 12 months: £17,100
• Repay at exit: £150,000

Key differences:

• Retained: You receive £17,100 less upfront but have no monthly commitments. Total cost is the same.
• Serviced: You receive more upfront but must prove affordability and make monthly payments. You could potentially borrow more if your income supports it.

Which to choose:

Most clients choose retained because:

• Properties under refurbishment typically generate no rental income
• No monthly payment pressure during the project
• Simpler to qualify - doesn't require income assessment
• Cash flow remains focused on project completion

Choose serviced if you have reliable income and want to maximise the cash you receive upfront. The lender will assess your ability to make monthly payments based on your personal finances.

Important: With retained interest, the gross loan (including rolled-up interest) cannot exceed the lender's maximum LTV - typically 75%. This can limit how much you can borrow if rates are high or terms are long.