Bridging Loans and Deposits: A Practical Guide

Question 1

Do you need a deposit for a bridging loan?

Accepted Answer

In most cases, yes. A bridging lender wants a financial stake in the deal so the loan is comfortably covered by the property. A standard first-charge bridge on residential security is typically advanced at around 70-75% of the purchase price or value on a gross basis, with commercial security capped lower, often 65-70% , and land or unusual assets lower still.

Question 2

What is the difference between the gross and net loan on a bridging loan?

Accepted Answer

The gross loan is the headline figure the lender quotes, calculated against the property's value. The net loan, or net advance, is what actually reaches you once the lender's costs are taken off at completion, including the arrangement fee, retained interest, and legal and valuation fees. Because these come off the top, the net advance is always lower than the gross loan, which is why the real deposit needed is worked out from the net figure rather than the headline percentage.

Question 3

Can equity replace a cash deposit on a bridging loan?

Accepted Answer

Yes. Equity is the value you already own in a property once any outstanding mortgage is deducted from its market value. A bridging lender can treat that equity in the same way as cash, by taking a charge over the property that holds it. This is how most low-deposit and no-deposit bridging works: instead of moving money from your own account, the lender secures the loan against an asset you already control, while keeping the overall borrowing within its loan-to-value limits.

Question 4

Can you use a bridging loan to raise a deposit for another purchase?

Accepted Answer

Yes. If you already own a property, a second-charge bridge against it can raise the shortfall needed as a deposit on a new purchase, alongside a mortgage or bridge on the property you're buying. This is a useful structure, but bridging costs more than a standard mortgage, interest is usually rolled up rather than paid monthly, and you will have short-term borrowing secured across more than one property, so a clear, realistic exit is needed before you commit.

Question 5

Can you get a 100% bridging loan with no deposit?

Accepted Answer

Yes, but only through additional security, not against a single property alone. A bridging lender will almost never advance the full value of one property on its own, because that would leave it carrying all the risk. If you bring a second property with enough free equity into the deal, a technique known as cross-charging, the lender can assess the risk across the combined security and advance the full purchase price. Without a second property to offer, a true no-deposit bridge is unlikely to be available.

Question 6

Why is an exit strategy important for a bridging loan?

Accepted Answer

Lenders require a solid exit strategy to assess the risk of lending to you. It demonstrates your ability to repay the loan as they have no wishes to lend for the longer term.

Question 7

Can I change my exit strategy after taking out a bridging loan?

Accepted Answer

While it's possible to change your exit strategy, it's best to have a clear plan in place from the outset. Discuss any potential changes with your lender or mortgage broker as early as possible.

Question 8

Do you still need a deposit with a bridging loan?

Accepted Answer

Yes. You will either need a cash deposit or available equity in another property. Bridging lenders typically go up to 75/80% LTV.

Question 9

Can I use equity from another property as a deposit for a bridging loan?

Accepted Answer

Yes, you can use equity from another property as security for a bridging loan. This can be extracted with a secured loan, remortgage or another bridging loan, or some lenders offer cross-collateralisation, where they take a legal charge over two properties.

Question 10

Can I use a bridging loan to fund the deposit on a new property?

Accepted Answer

Yes, this is a common use case for bridging loans, especially in chain break situations. You can use a bridging loan to cover the deposit on a new property while waiting for your existing property to sell.

Question 11

I already have a mortgage, can I still get a bridging loan?

Accepted Answer

Yes this is quite a normal situation. In most cases the current mortgage stays unchanged, although the lender will need to agree to the new bridge loan. This will be in the form of a second charge bridge.

Question 12

Is it easy to get a bridging loan?

Accepted Answer

Yes, easier than you probably think. Bridging finance is quick and easy to arrange.