Product types
Commercial bridging
Short-term commercial mortgage typically used to acquire, refurbish or refinance commercial property pending a longer-term exit. Priced monthly, term 1 to 24 months.
Commercial bridging is a short-term commercial mortgage product, typically 1 to 24 months, used for situations where a longer-term term commercial mortgage will not work: a fast purchase, a refurbishment or change of use, a chain-break, or a refinance pending sale. Priced on a monthly rate rather than an annual one, which is the giveaway distinction.
How commercial bridging differs from term commercial mortgages
Three structural differences:
- Term: 1 to 24 months versus 5 to 25 years.
- Pricing: 0.70 to 1.20% per month (broadly 8.5 to 14.0% per annum equivalent) versus 6.0 to 8.5% per annum.
- Underwriting: less weight on rental income or trading EBITDA, more weight on the exit strategy (sale, refinance, refurbishment-then-refinance).
The borrower is paying a premium for speed and flexibility. The exit determines whether the premium is worth paying.
Typical uses on UK commercial property
- Auction purchases: completion typically required within 28 days; term commercial mortgages cannot move that fast.
- Heavy refurbishment: the building is not lettable today, so term commercial mortgage lenders will not lend on current condition. Bridge funds the works, term commercial mortgage refinances on completion.
- Change of use: commercial to residential PD conversion, retail to mixed-use. Term commercial mortgage cannot exit until the new use is implemented and lettable.
- Chain-break and acquisition: borrower wants to complete on a new commercial purchase before selling an existing property.
Pricing structure
UK commercial bridging is almost always quoted in monthly rates. A 0.85% per month bridge over 12 months is 10.2% on a simple-interest basis. Most lenders compound monthly, which pushes the effective rate slightly higher. Fees on top: arrangement fee 1.5 to 2.5%, exit fee (sometimes), legal costs, valuation, monitoring fees on staged drawdown.
A worked broker example
A South Yorkshire investor buying a vacant ex-office block at auction for 850,000 with intention to refurbish and convert to mixed-use. Bridge: 650,000 (76% LTV) at 0.95% per month, 18-month term, 2% arrangement fee, 1% exit fee. Interest roll-up funded. Total interest cost over 18 months at simple monthly compounding is approximately 117,000. Total cost of borrowing 117k interest plus 13k arrangement plus 6.5k exit equals about 136.5k for 18 months.
The bridge exit is a term commercial investment mortgage at 65% LTV against the refurbished and let property, valued at 1.4 million on completion. New loan 910,000 repays bridge plus interest plus a chunk of the borrower’s own equity.