How Much Does a £1 Million Bridging Loan Cost?
A £1 million bridging loan at an illustrative interest rate of 0.75% per month would cost £7,500 in monthly interest, or £45,000 over six months, before arrangement fees and other charges.
For larger borrowing, a £2 million bridging loan would incur £15,000 in monthly interest at the same rate, while a £5 million loan would incur £37,500.
The actual cost depends on the lender, property, loan-to-value, borrowing term and how interest and fees are charged.
Below, we compare bridging loan costs from £1 million to £5 million and explain the additional expenses and repayment arrangements to consider.
How Much Does a £1 Million to £5 Million Bridging Loan Cost?
Bridging loan interest is usually quoted as a monthly percentage because the finance is intended for short-term borrowing.
The table below compares the interest costs of loans between £1 million and £5 million at an illustrative rate of 0.75% per month.
| Loan Amount | Monthly Interest | 6 Months’ Interest | 12 Months’ Interest |
|---|---|---|---|
| £1 million | £7,500 | £45,000 | £90,000 |
| £2 million | £15,000 | £90,000 | £180,000 |
| £3 million | £22,500 | £135,000 | £270,000 |
| £4 million | £30,000 | £180,000 | £360,000 |
| £5 million | £37,500 | £225,000 | £450,000 |
These figures assume simple, non-compounding interest calculated on the stated loan amount at a constant 0.75% per month. The rate is illustrative, not a current lender quotation. Arrangement fees and other charges are excluded.
The longer the loan remains outstanding, the more interest will generally be charged.
However, lenders calculate interest differently. Some allow interest to be paid monthly, while others retain or roll up interest until the loan is repaid.
You can use our bridging loan calculator to explore different borrowing amounts, interest rates and terms.
Example: Total Cost of a £2 Million Bridging Loan
Interest is only one part of the overall cost of bridging finance.
For example, consider a £2 million bridging loan over nine months, with an illustrative monthly interest rate of 0.75% and a lender arrangement fee of 1.5%.
| Cost | Amount |
|---|---|
| Loan amount used for calculation | £2,000,000 |
| Monthly interest rate | 0.75% |
| Loan term | 9 months |
| Interest over 9 months | £135,000 |
| Lender arrangement fee at 1.5% | £30,000 |
| Total interest and arrangement fee | £165,000 |
| Legal, valuation, broker and other fees | Additional |
In this simplified example, the interest and lender arrangement fee total £165,000, excluding other costs.
The actual amount required to repay the loan will depend on how the lender structures it.
For example, if the £2 million is the outstanding capital balance, the interest is charged without compounding, and the arrangement fee is paid separately, the capital and nine months’ interest would total £2,135,000 at redemption if no interest payments had been made.
If interest or fees are financed within the loan, the gross borrowing and redemption amount may be different.
This is why it is important to distinguish between:
- Gross loan: The total facility or borrowing under the lender’s agreed structure.
- Net advance: The amount actually released after any deductions.
- Redemption amount: The amount needed to repay the loan, including outstanding interest and applicable charges.
A lender’s quotation should make these figures clear before proceeding.
What Additional Fees Apply to Large Bridging Loans?
Alongside interest, larger bridging loans can involve several additional charges.
Lender Arrangement Fees
The lender may charge a fixed amount or a percentage of the borrowing.
For example, an arrangement fee of 1.5% would equal £15,000 on a £1 million loan or £75,000 on a £5 million loan.
These are illustrative calculations rather than standard charges. Actual fees depend on the lender and transaction.
Valuation and Legal Fees
Lenders generally need to assess the property being used as security.
Valuation costs can depend on the type of property, its value, location and whether multiple properties are involved.
Borrowers may also need to pay their own legal fees and the lender’s legal costs. Complex transactions involving commercial property, development sites or multiple securities can require additional legal work.
Broker and Other Fees
A broker fee may apply, along with any lender administration, monitoring or exit fees specified in the agreement.
At Kerr & Watson, we explain and agree any applicable broker fee before proceeding.
When comparing quotations, it is important to consider the total cost rather than the monthly interest rate alone.
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What Affects the Cost of a £1 Million to £5 Million Bridging Loan?
Lenders consider several factors when assessing larger bridging finance applications.
Loan-to-value (LTV)
The amount borrowed relative to the value of the property used as security can influence the lender’s available terms.
For example, a £2 million loan secured against a property worth £4 million represents 50% LTV before allowing for any additional borrowing, interest or fees.
A lower LTV may improve the range of available lenders and rates.
Property type and condition
Lending criteria can vary depending on whether the security is a residential property, commercial building, mixed-use property, land or a property requiring refurbishment.
Some lenders specialise in particular property types or projects.
Borrower experience and circumstances
For investment and refurbishment transactions, lenders may consider the borrower’s previous experience, financial position and track record.
Exit strategy
A lender will need to understand how the loan is expected to be repaid.
A clearly evidenced property sale or refinancing strategy may provide greater confidence than an exit dependent on uncertain future events.
Loan term and interest structure
The planned borrowing period and whether interest is serviced, retained or rolled up will affect the overall cost and funds available.
How Is Interest Charged on Larger Bridging Loans?
Interest can generally be handled in three ways.
- Serviced interest: You make regular interest payments and repay the capital at the end of the term.
- Rolled-up interest: Interest accrues during the loan and is settled at redemption. Depending on the lender, interest may compound.
- Retained interest: The lender sets aside an agreed provision for interest within the facility, reducing the amount available to you.
The structure matters particularly on loans of several million pounds because a relatively small difference in interest rate or the way interest is calculated can have a substantial effect on the total cost.
What Can a £1 Million to £5 Million Bridging Loan Be Used For?
Larger bridging loans may be considered for a range of property transactions, including:
- Purchasing a property before an existing property has sold.
- Completing a substantial property purchase within a short deadline.
- Acquiring residential investment portfolios.
- Purchasing or refinancing commercial or mixed-use property.
- Funding the acquisition of property requiring refurbishment before sale or longer-term refinancing.
- Releasing capital against suitable property security for an eligible business or investment purpose.
The available lending options will depend on the purpose of the finance, security, exit strategy and lender criteria.
Some transactions may be better suited to development finance or a longer-term commercial mortgage rather than bridging finance.
How Important Is the Exit Strategy?
The exit strategy is particularly important when borrowing £1 million or more.
A bridging loan is intended to provide temporary finance, so lenders need a credible explanation of how it will be repaid.
Common exit strategies include selling the property, selling another asset or refinancing onto longer-term finance.
For example, if a customer plans to repay a £3 million bridging loan through the sale of an investment property, the lender may consider its estimated sale value, existing secured borrowing and expected selling period.
Where the exit depends on refinancing, the lender may consider whether the proposed longer-term finance is likely to be available.
If the exit is delayed, additional interest or charges may apply. An extension is not guaranteed, and failure to repay can put the secured property at risk.
It is therefore important to consider both the planned exit and what would happen if the transaction takes longer than expected.
Frequently Asked Questions About £1 Million to £5 Million Bridging Loans
How much does a £1 million bridging loan cost?
At an illustrative interest rate of 0.75% per month, a £1 million bridging loan would incur £7,500 in monthly interest or £90,000 over 12 months, assuming simple interest without compounding. Lender fees and other charges would be additional.
How much does a £2 million bridging loan cost?
A £2 million bridging loan at 0.75% monthly interest would incur £15,000 in monthly interest. Over six months, this would total £90,000 before arrangement fees and other charges.
How much does a £3 million bridging loan cost?
At an illustrative rate of 0.75% per month, a £3 million bridging loan would incur £22,500 in monthly interest, or £270,000 over 12 months, assuming simple interest without compounding and excluding fees.
How much does a £4 million bridging loan cost?
A £4 million bridging loan at 0.75% monthly interest would incur £30,000 in monthly interest. Over six months, interest would total £180,000 before lender and other fees.
How much does a £5 million bridging loan cost?
At an illustrative monthly rate of 0.75%, a £5 million bridging loan would incur £37,500 in monthly interest, or £225,000 over six months, excluding fees and assuming simple interest without compounding.
Can you repay a large bridging loan early?
Potentially, yes. Some lenders charge interest based on the time the loan remains outstanding, while others apply minimum interest periods or specific redemption charges. The terms should be checked before entering into the agreement.
Speak to Kerr & Watson About Large Bridging Loans
Whether you need £1 million, £3 million or £5 million in bridging finance, Kerr & Watson can help you compare available lenders, understand the costs and assess the proposed repayment arrangements.
We work with bridging and specialist lenders and can review transactions involving residential, commercial and investment properties.
We will consider the loan amount required, property security, expected timescale and exit strategy before discussing suitable options.
Speak to Kerr & Watson to discuss your bridging finance requirements.
