Guide
How Much Does a
Bridging Loan Cost?
Rate, arrangement fee, exit fee, legal costs — the full breakdown of what you will actually pay.
The Five Cost Components
Every bridging loan has up to five cost components. Some are negotiable, some are fixed, and some can be avoided entirely with the right lender. Understanding each one is essential for comparing quotes accurately.
Interest Rate (0.40% – 1.50% per month)
The headline rate, charged monthly on the loan balance. Most bridging loans use rolled-up interest — meaning no monthly payments. The interest accrues and is repaid along with the capital when you exit. This is a significant advantage: your cash flow remains free during the loan term. Rates vary based on LTV, property type, borrower profile, and exit strategy strength.
Arrangement Fee (1% – 2% of the loan)
The lender’s fee for setting up the facility. Typically 2% for most deals, sometimes negotiable to 1% on larger loans (£1m+). Usually added to the loan so you don’t pay it upfront — but this means you’re paying interest on it too.
Exit Fee (0% – 1% of the loan)
Charged when you repay. Not all lenders charge this — some have no exit fee at all. Where it applies, it’s typically 1% of the gross loan. This is the most variable fee and the one most often overlooked when comparing quotes. A deal with no exit fee and a slightly higher rate can be cheaper overall.
Legal Costs (£2,500 – £10,000+)
You pay for your own solicitor and the lender’s solicitor (sometimes the same firm can act for both, reducing cost). Legal fees depend on deal complexity, property type, and loan size. A straightforward residential bridge might be £2,500–£4,000 all-in. Complex commercial deals or those with multiple securities will cost more.
Valuation Fee (£1,500 – £5,000+)
The lender requires an independent RICS valuation. Cost depends on the property’s value and complexity. A standard residential property is typically £1,500–£2,500. Commercial properties, development sites, or high-value assets cost more. This is paid upfront and is non-refundable if the deal doesn’t proceed.
Worked Example: £500,000 Loan Over 9 Months
Let’s put real numbers on this. A £500,000 bridging loan at 65% LTV on a residential investment property, 9-month term, clean credit borrower with a strong exit:
| Cost Component | Calculation | Amount |
|---|---|---|
| Interest (rolled up) | £500,000 x 0.65% x 9 months | £29,250 |
| Arrangement fee | £500,000 x 2% | £10,000 |
| Exit fee | £500,000 x 1% | £5,000 |
| Legal costs (est.) | Borrower + lender solicitor | £3,500 |
| Valuation | RICS valuation on £770k property | £1,800 |
| Total Cost of Borrowing | £49,550 | |
That’s 9.9% of the loan amount, or roughly 1.1% per month all-in. Remember: with rolled-up interest, you make no monthly payments — the entire £49,550 is repaid when you exit. Model your own scenario with our bridging calculator.
What Affects Your Rate
The headline interest rate is not arbitrary. Lenders price each deal based on a matrix of risk factors. Understanding these helps you negotiate and, more importantly, structure your deal for the best possible terms.
Pushes the Rate Down
- Lower LTV (under 60%)
- Standard residential property
- Clean credit history
- Strong exit with evidence (AIP or exchanged)
- Experienced borrower / repeat client
- Larger loan size (£1m+)
- First charge only
Pushes the Rate Up
- Higher LTV (70%+)
- Non-standard property (commercial, land, HMO)
- Adverse credit history
- Weak or unverified exit
- Complex deal structure
- Second charge / behind existing debt
- Short notice / urgent completion
See our rates page for current indicative pricing across different deal types.
Hidden Costs to Watch For
The headline figures are only part of the picture. Several costs can catch borrowers off guard if they’re not flagged upfront:
Minimum interest periods. Some lenders charge a minimum of 3 or even 6 months’ interest regardless of when you repay. If you’re planning to exit in month 2, a 3-month minimum adds 50% to your interest cost. Always check this.
Early repayment charges. Separate from minimum interest periods. Some lenders charge a penalty for early repayment, typically in the first 3 months. Others have no early repayment charge at all. If early exit is likely, this matters significantly.
Administration and drawdown fees. Small but irritating charges that some lenders add — £500 here, £750 there. They add up. We flag these in every quote we present.
Broker fees. Some brokers charge a fee on top of the lender’s costs — typically 0.5–1% of the loan. We are transparent about our fees from the outset, and they are factored into every comparison we provide so you see the true total cost.
Fund transfer and CHAPS fees. The cost of actually moving the money on completion day. Typically £25–£50 per transfer but can be higher for large sums.
How to Compare Quotes Properly
This is where most borrowers go wrong. They compare headline rates and pick the lowest number. But a 0.55% rate with a 2% arrangement fee and 1.5% exit fee can cost significantly more than a 0.75% rate with 1% arrangement and no exit fee.
The only number that matters is the total cost of borrowing — the complete amount you will pay over the life of the loan, including every fee. This is what our calculator computes for you.
| Component | Lender A (lower rate) | Lender B (higher rate) |
|---|---|---|
| Monthly rate | 0.55% | 0.75% |
| Arrangement fee | 2% | 1% |
| Exit fee | 1.5% | None |
| Interest (£500k, 9 months) | £24,750 | £33,750 |
| Fees total | £17,500 | £5,000 |
| Total cost | £42,250 | £38,750 |
Lender B’s £38,750 beats Lender A’s £42,250 despite a higher headline rate. This is why total cost of borrowing is the only meaningful comparison metric. We present every option this way so you can make an informed decision. Get in touch for a real comparison on your specific deal.
Stamp Duty and Tax Considerations
The finance costs above are only part of the picture. Tax is often the largest single cost in a bridging transaction — and it’s the one most borrowers underestimate. Here’s what you need to factor in.
Stamp Duty Land Tax (SDLT)
Bridging purchases of investment property attract the 5% surcharge for additional dwellings (assuming you already own a residential property). On a £500,000 purchase, that’s £32,500 in SDLT alone — often more than the total bridging costs themselves. This is a day-one cash outflow that needs to be in your project appraisal from the start.
If you’re purchasing through a limited company or SPV, the surcharge applies on every residential acquisition regardless of whether the company owns other properties. There is no first-time buyer relief for companies.
For non-residential or mixed-use properties, the SDLT rates are different (and typically lower). Land transactions have their own rate bands. The key point: calculate SDLT early and treat it as a fixed project cost, not an afterthought.
Corporation Tax and Interest Deductibility
If you’re borrowing through a limited company or SPV — which is the case for most investment and development deals — bridging interest is typically tax-deductible as a business expense. This reduces the effective cost of the finance. On a £30,000 interest bill, the corporation tax saving at 25% is £7,500, bringing the effective interest cost down to £22,500.
Arrangement fees, broker fees, legal costs, and valuation fees are also generally allowable deductions against profits. The entire cost of the bridging facility becomes a project expense that reduces your taxable gain.
For individual borrowers, the tax treatment is different and depends on whether you’re trading (flipping) or investing (holding). The rules around interest deductibility for individual landlords changed significantly in 2020 — consult your accountant for the treatment specific to your structure and strategy.
Capital Gains Tax (CGT)
If you’re buying, refurbishing, and selling within the bridging term, capital gains tax applies to the profit. For companies, this is paid through corporation tax at 25%. For individuals, CGT rates on property disposals are 18% (basic rate) or 24% (higher rate), with an annual exempt amount that reduces the taxable gain.
The good news: bridging costs are allowable deductions against the gain. Interest, arrangement fees, broker fees, legal costs, valuation fees — all reduce your taxable profit. So does the cost of any works carried out on the property, SDLT paid on purchase, and selling agent fees.
If you’re buying and selling frequently through a company, HMRC may treat the activity as property trading rather than investment. Trading profits are subject to corporation tax but not CGT — the distinction matters for how you structure your business. Take advice early.
VAT
Bridging loan interest is exempt from VAT — you won’t see VAT added to your interest charges. However, several other costs in the transaction may attract VAT at 20%:
- Arrangement fees — some lenders charge VAT on their arrangement fee, others don’t. Check whether quoted fees are inclusive or exclusive.
- Broker fees — typically subject to VAT. A 1% broker fee on a £500,000 loan is £5,000 plus £1,000 VAT.
- Legal costs — solicitors’ fees always attract VAT. A £3,000 legal bill becomes £3,600 inclusive.
- Valuation fees — RICS valuations are subject to VAT.
If you’re VAT-registered and the property transaction involves commercial property opted to tax, some of this VAT may be recoverable. For most residential investment deals, the VAT on professional fees is simply an additional cost. Always check whether quotes are VAT-inclusive or exclusive — it can make a material difference to your total outlay.
Tax treatment depends on individual circumstances and is subject to change. The figures above are illustrative. Always consult a qualified accountant or tax adviser before committing to a transaction.
How to Reduce Your Bridging Costs
Bridging finance is a premium product, but that doesn’t mean you should overpay. There are practical steps you can take to reduce the total cost of your facility — some before you apply, and some through how you structure the deal.
Lower your LTV
More equity means lower risk for the lender, which means a lower rate for you. Bridging lenders price in bands — 0-50% LTV, 50-60%, 60-65%, 65-70%, 70-75%. Even putting in 5% more deposit can move you into a cheaper pricing band and save thousands over the term. If you have equity in other properties, offering additional security to bring the effective LTV down is another way to access better rates.
Choose lenders with no exit fee
The exit fee is the most variable cost in a bridging loan and the easiest saving to find. Some lenders charge 1-1.5% of the gross loan on exit; others charge nothing. On a £500,000 loan, that’s a £5,000-£7,500 difference. A lender with a slightly higher monthly rate but no exit fee will often be cheaper overall — as demonstrated in our comparison table above. We always flag exit fees prominently when presenting options.
Use dual-representation solicitors
On many bridging deals, a single law firm can act for both the borrower and the lender. This is called dual representation, and it significantly reduces legal costs — you’re paying one firm instead of two, and they only need to do the due diligence once. Not all lenders or all deal types allow this (complex commercial transactions often require separate representation), but where it’s available, it can save £2,000-£4,000 in legal fees and speed up completion.
Exit early
If your bridging loan uses rolled-up interest with no minimum interest period, you only pay for the months you use. Exiting in month 4 instead of month 6 saves two months’ interest — on a £500,000 loan at 0.65%, that’s £6,500 saved. The key is choosing a lender with no minimum interest period and no early repayment charge. Some lenders lock you into 3 or 6 months’ minimum interest regardless of when you repay. We specifically check this on every deal and steer you towards flexible terms wherever possible.
Compare total cost, not headline rate
This point bears repeating because it is the single most common mistake borrowers make. A 0.55% rate sounds better than 0.75%, but when you factor in a higher arrangement fee and an exit fee, the “cheap” rate can cost you thousands more. Always compare the total cost of borrowing over your expected term. Our calculator is built specifically for this — plug in the full fee structure of each option and compare the bottom line.
Work with a broker who negotiates
Not all brokers simply place your deal with the first lender that says yes. We negotiate terms — rates, fees, minimum interest periods, exit fees, and facility conditions. On a £1m loan, reducing the arrangement fee from 2% to 1.5% saves £5,000. Getting the exit fee waived saves another £10,000. Securing a rate 0.10% lower per month saves £6,000 over 6 months. These are real savings on real deals that come from having relationships with lenders and understanding where there is flexibility in their pricing. Talk to us about your deal and we’ll show you what’s possible.
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