Bridging loan terms of 18 to 24 months are becoming an increasingly common fixture in the short-term lending market, as slower property transactions, project delays and less predictable exit strategies push borrowers to seek greater flexibility.
Traditionally, bridging facilities have run for between six and 12 months. That remains the norm, but specialist lender Octane Capital says longer terms are now a regular feature of the market as lenders adapt to more complex deal structures and realistic exit planning.
To quantify the cost of the shift, Octane Capital modelled the difference between a traditional average term of nine months and a longer-term facility of 21 months, using current market averages for property values, loan-to-value ratios and monthly rates.
Based on an average property value of £277,542 and an average bridging LTV of 52%, a borrower would require an estimated £144,322 in bridging finance. At an average monthly rate of 0.82%, the monthly interest cost on that loan comes to approximately £1,183.
Over a nine-month term, total interest amounts to an estimated £10,651. Stretched to 21 months, that figure rises to £24,852, a difference of £14,201. The additional cost is substantial, but Octane Capital argues the extra 12 months can prove valuable when executing an exit strategy in a market where timelines are increasingly difficult to plan around.
The lender's own analysis of England's new-build market found that one in eight new-build homes currently for sale has been listed for more than six months, illustrating how long securing a buyer can take. Planning hold-ups, refurbishment complications and other project delays can similarly extend borrowing requirements, making it important to select a realistic term at the outset.
Choosing too short a term carries its own risks. If an exit is delayed, borrowers may face refinancing or re-bridging pressure at short notice, adding costs and complexity. By contrast, some lenders, including Octane Capital, charge no exit fee where a borrower exits earlier than anticipated, meaning a longer facility does not necessarily impose a penalty for finishing ahead of schedule.
"Bridging has always been about speed and flexibility, but flexibility increasingly means giving borrowers sufficient time to execute their exit strategy as well as getting the initial funding in place quickly," said Jonathan Samuels, chief executive of Octane Capital (pictured).
"Property transactions don't always follow the timeline you expect. Sales can take longer, planning can be delayed, and refurbishment projects can encounter unforeseen issues, so building a realistic timeframe into a bridging facility from day one is extremely important.
"Of course, additional time comes at a cost, and our analysis demonstrates just how much more interest can accumulate over a longer term. That doesn't mean borrowers should automatically opt for the shortest facility possible, but nor should they simply take the longest term available.
"The key is working with your broker and lender to establish a realistic exit strategy and assessing the total cost and flexibility of the facility rather than focusing solely on the headline rate.
"It's also important to compare lenders carefully. Features such as having no exit fee can provide borrowers with the breathing space of a longer facility whilst still allowing them to exit early without an additional charge should their plans progress faster than expected."
