It's easy to look at a bridging loan's monthly rate next to a mortgage's annual rate and assume the mortgage is always cheaper. In pure interest terms, it usually is. But that comparison only tells half the story, because in a lot of situations, a mortgage simply isn't an option in the timeframe available. To make the comparison properly, you need to look at a real scenario, with all the fees included, not just the headline rate.
The scenario
Say you spot a three-bedroom house going to auction with a guide price of £180,000. It needs a new kitchen and bathroom, and has some minor damp in one bedroom, which is common enough at auction but enough to make most high-street mortgage lenders decline it outright, at least until the work is done. You win the auction at £190,000. Auction rules mean you have 28 days to complete, not the 12 to 16 weeks a typical mortgage application takes from offer to completion.
Why a mortgage doesn't work here
Even if a lender was willing to mortgage the property as it stands, which many won't due to the damp and lack of a working kitchen, the timeline alone rules it out. A mortgage application involves a formal valuation, underwriting, and often weeks of back-and-forth on documentation. Twenty-eight days is rarely enough, and missing an auction completion deadline typically means losing your 10% deposit and potentially being liable for the difference if the property is resold at a lower price.
The bridging route
A bridging loan is built for exactly this situation. Assuming a 65% loan-to-value against the £190,000 purchase price, you'd borrow £123,500, funding the rest from your own deposit. Here's how the costs break down over a 6-month term, using a monthly rate of 1.75% and a 2% arrangement fee, with no broker involved:
- Loan amount: £123,500
- Retained interest (6 months at 1.75% pm): £12,967.50
- Arrangement fee (2%): £2,470
- Amount received after fees and interest are taken off: £108,062.50
- Total repayable at the end of the term: £136,467.50
On top of this, you'd have the usual purchase costs that apply regardless of how you finance it: valuation fees, legal fees for both sides, and stamp duty, which we've left out here since they don't change between the two routes. It's worth getting quotes for these separately, since they can vary noticeably between solicitors and surveyors, and are easy to forget when you're focused on the headline loan figures.
What it would have cost as a mortgage, hypothetically
If the same £123,500 was borrowed on a mortgage at, say, 5.5% annually over the same six-month period, the interest alone would come to roughly £3,396, dramatically less than the bridging figure. This is the number people usually stop at when they say bridging is "too expensive." But it ignores that this option wasn't actually available: no mainstream lender would have completed within 28 days, or lent against a property with an unworkable kitchen and active damp.
Where the real comparison lies
The honest comparison isn't bridging versus a mortgage on the same day. It's bridging versus losing the deposit and walking away from the deal entirely, or bridging versus a lengthy delay while you find a different, mortgageable property instead. Once the refurbishment is finished, the damp treated, and a new kitchen fitted, the property becomes mortgageable, and refinancing onto a standard rate at that point brings the ongoing cost back down to something much closer to the mortgage figure above.
This is also why the exit strategy matters so much. In this example, the six-month term gives enough time to complete the refurbishment and arrange a remortgage, at which point the higher short-term cost of the bridge becomes a one-off expense rather than an ongoing one. If the refurbishment finishes early, our early repayment discount also reduces the overall cost by 5% for every month repaid ahead of schedule, which narrows the gap further still, and rewards exactly the kind of well-planned project that finishes on time or early.
The fees people forget to include
A lot of online "bridging vs mortgage" comparisons only look at the headline interest rate, and miss the arrangement fee, any broker fee, and the fact that bridging interest is usually retained upfront rather than paid monthly, which changes how much money you actually receive on day one versus how much you owe at the end. Our own calculator is built to show all of this together: the amount you receive, the amount you repay, and every fee in between, so you can see the real cost of a specific loan amount and term before you apply, rather than discovering extra deductions only once your solicitor sends the completion statement.
If you're weighing up a similar decision, run your own numbers through the calculator on our home page, or get in touch and we'll talk through whether bridging is genuinely the right tool for your situation.