Bridging Loan Rates & Costs: Transparent UK Fee Guide

TL;DR: Bridging interest is quoted as a monthly percentage (e.g. 0.65% pm) rather than an annual APR. You can pay this via Serviced Interest (monthly direct debit), Retained Interest (interest deducted upfront from the gross advance), or Rolled-Up Interest (compounded and settled upon final redemption).

Monthly Interest Models: Retained, Serviced, and Rolled-Up Cashflow

In practice, understanding how bridging interest is quoted and collected is essential for managing project cash flow. Furthermore, selecting the right model prevents unexpected surprises on your net loan proceeds.

The Three Primary Interest Repayment Models:

• 1. Retained Interest (Most Common): First, the lender calculates total expected interest for the agreed term (e.g. 9 months at 0.70% pm) and retains it upfront from gross advance. You make zero monthly payments. Furthermore, if you redeem early in month 4, unused retained interest is refunded in your redemption statement.
• 2. Serviced Interest: In contrast, you pay interest monthly via direct debit, like an interest-only mortgage. Therefore, your day-one net loan is higher, but you must prove sufficient monthly cash flow.
• 3. Rolled-Up Interest: Finally, interest compounds monthly and is added to the principal balance. You make no monthly payments; instead, all interest is cleared upon final sale or refinancing.

TL;DR: Prime residential bridging rates in the UK currently range from 0.55% to 0.75% per month for lower LTVs (≤60%). Commercial properties, mixed-use units, and heavy refurbishments range from 0.75% to 0.95% per month, with second charges typically priced at 0.85% to 1.15% per month.

Current UK Bridging Interest Rate Matrix Across Property Sectors

Consequently, bridging rates are risk-based and reflect security liquidity, legal charge position, loan-to-value (LTV), and borrower experience. Therefore, rates are quoted on a monthly basis rather than an annual APR. Specifically, prime assets secure the lowest rates.

UK Bridging Interest Rate Benchmark:

• Prime Residential First Charge (≤60% LTV): 0.55% – 0.65% per month. Applies to standard houses in liquid locations with straightforward exits.
• Standard Residential First Charge (65% – 75% LTV): 0.65% – 0.79% per month. Specifically, this is the primary borrowing tier for property investors and auction buyers.
• Commercial & Semi-Commercial (Up to 65% LTV): 0.75% – 0.89% per month. For example, this covers retail, offices, industrial units, and flats above shops.
• Heavy Refurbishment & Conversions: 0.79% – 0.95% per month. In practice, this reflects structural works prior to achieving Gross Development Value.
• Second Charge Bridging: 0.85% – 1.15% per month. Crucially, this sits behind an existing mortgage without disturbing low fixed rates.

TL;DR: Upfront costs comprise the RICS valuation fee and solicitor legal undertaking deposit. Facility costs—including the lender arrangement fee (1% to 2%), broker fee, and legal fees—are typically rolled into the gross loan balance and deducted at completion.

Complete Fee Schedule: Arrangement, Valuation, Legal, and Broker Costs

Furthermore, when assessing a bridging loan illustration, borrowers must account for all transaction fees. Specifically, evaluating total facility charges allows you to calculate net usable funds with precision. Consequently, you avoid unexpected shortfall risks.

Complete Breakdown of Bridging Costs:

• Lender Arrangement Fee: Typically 1.0% to 2.0% of the gross loan facility. In practice, this is added to the loan balance rather than paid out of pocket.
• Broker Arrangement Fee: Specialist brokers charge 1.0% to 1.5% for sourcing bespoke terms and driving fast conveyancing.
• RICS Valuation Fee: Paid upfront directly to the chartered surveyor (£600 to £2,500 depending on asset scale).
• Lender Legal Fees: You must cover the lender’s legal costs alongside your own conveyancer via a legal undertaking deposit.
• Exit Fees: While leading lenders charge 0% exit fees on standard products, always ensure your broker negotiates a 0% exit clause.

TL;DR: On a £200,000 purchase at 75% LTV, a £150,000 net advance requires a £161,500 gross facility. Over 6 months at 0.70% per month with retained interest, total borrowing costs equal £14,683 (including arrangement, valuation, and legal fees), redeemed at £161,500 upon sale or refinance.

Transparent £200,000 Bridging Case Study with Full Fee Breakdown

For instance, to illustrate the true borrowing costs of specialist bridging finance, consider this realistic 6-month auction purchase case study:

Financial Mechanics of £200,000 Purchase:

• Purchase Price: £200,000 (Requires 25% cash deposit = £50,000).
• Net Loan Advance: £150,000 (75% LTV).
• Lender Arrangement Fee (2%): £3,230 (Rolled into gross loan).
• Retained Interest (6 Months @ 0.70% pm): £6,783.
• Professional Fees: RICS valuation (£900) + Lender legals (£1,500) + Broker fee (£1,500).
• Gross Facility Total: £161,500. Total cost of borrowing: £14,683.

Consequently, if the investor finishes works and refinances in month 4, the unspent 2 months of interest (£2,261) are refunded immediately, reducing total cost.

TL;DR: Yes, for commercial property investors and Limited Company SPVs, bridging loan interest and arrangement fees are fully deductible business expenses against rental income and Corporation Tax. For individual residential landlords, finance costs are restricted to a basic-rate 20% tax credit under Section 24.

HMRC Tax Rules: Corporate SPV Deductions vs Section 24 Landlords

Crucially, the tax deductibility of bridging finance costs depends entirely on your legal ownership structure. In contrast to individual ownership, holding properties in corporate SPVs unlocks maximum tax relief. Therefore, professional advice is essential.

Tax Treatment Breakdown by Entity:

• Limited Company SPVs (100% Deductible): Finance costs, arrangement fees, and valuation charges are treated as allowable business expenses. Therefore, these deduct directly from trading profit to reduce your Corporation Tax liability.
• Property Traders & Flippers: In contrast, for individuals buying to sell, finance costs are deductible against Capital Gains Tax (CGT) or Income Tax as allowable enhancement costs.
• Individual Buy-to-Let Landlords (Section 24): Mortgage and finance costs cannot be deducted from gross rental income. Instead, individuals receive a restricted 20% tax credit.