Bridging loan exit strategies: how lenders expect to be repaid
An exit strategy is how you will repay a bridging loan in one sum when the term ends, usually by a sale or a refinance. Lenders test it before anything else, so see what each exit needs and where it can fail.
In short
- Decide how the loan will be repaid, and gather the evidence, before you apply: lenders test the exit before they study the property.
- A refinance exit is only as strong as the next lender's rules, so check the rent, your income and the property's condition against them at the start.
- Choose a term longer than the plan needs, because sales, building work and probate often run late.
- Keep a fallback exit and speak to the lender early if the term is going to run out.
- If the loan is not repaid the property can be repossessed, and GOV.UK lists free advice if you are worried about losing your home.
On this page
An exit strategy is how you will repay a bridging loan in full when the term ends. Nothing comes off the capital along the way, so the whole debt, plus any interest that has been rolled up, falls due on one day. That is why lenders underwrite the exit before the property. Good security tells a lender it could get its money back by selling your property, but it would far rather be repaid on time by you. The usual exits are a sale, a refinance onto longer-term borrowing, or money you can prove is on its way.
The main exits and the evidence lenders want
Sale of the property the loan is secured on
Evidence: recent sold prices for similar property, an agent's written appraisal and, once there is a buyer, the memorandum of sale and the solicitors' details. What can go wrong: the sale takes longer than planned, the buyer withdraws or cuts the offer after a survey, or the price no longer covers the loan and the interest added to it.
Sale of another property
You can repay from a different property, such as your current home in a chain break. Evidence: as for any sale, plus the mortgage balance on that property, so the lender can see what will be left. It may also ask for a charge over it. What can go wrong: the same as any sale, and the lender has less control over a property it holds no charge on.
Refinance onto a buy-to-let mortgage
This is the exit behind bridge to let. Evidence: a decision in principle from a buy-to-let mortgage lender and a rent estimate from a letting agent. The new loan is sized on the rent, not on what you owe. The Prudential Regulation Authority expects the lenders it supervises to test the expected rent against the monthly interest at a stressed rate (the interest coverage ratio). Its supervisory statement of September 2016 records the industry standard minimum as 125%, meaning rent of at least 125% of that interest. It says lenders should allow for rate rises over at least five years, and test at no less than 5.5%, unless the rate is fixed or capped for five years or more. Lenders set their own tests and a revised statement takes effect on 1 January 2027, so check the PRA's current version. What can go wrong: the rent supports a smaller mortgage than the bridge, the value after works comes in low, or the mortgage lender will not lend until you have owned the property for a minimum period.
Refinance onto a residential or commercial mortgage
For a home, the next lender tests your income and outgoings and needs the property to be habitable. For business or investment premises, a commercial mortgage lender looks at the lease and the rent, or at your trading accounts. Evidence: a decision in principle or indicative terms, plus proof of the income the new loan relies on. What can go wrong: the income supports less than you need, a tenant is not yet in place, or the application outlasts the time left on the bridge. Start a commercial remortgage early.
Sale of completed units after works or development
Evidence: planning consent where it is needed, a costed schedule of works, sold prices that support the finished values and a plan for selling. What can go wrong: the works overrun, or the units sell more slowly than hoped and the term ends with some unsold. Development exit finance is designed for that gap: it repays the first lender once the works are finished and gives you time to sell.
Inheritance, probate proceeds and other expected funds
Evidence: a letter from the solicitor or executor confirming your share and the expected date, the grant of probate, or paperwork for an investment or pension that is due to pay out. What can go wrong: timing. In England and Wales, GOV.UK advises against making financial plans or marketing a property until probate has been granted, and a payment towards any Inheritance Tax usually has to be made before the grant is issued (see applying for probate). An estate can also be disputed or pay out less than expected, so nobody can promise when the money will arrive.
Business sale or other capital event
Evidence: signed heads of terms or a sale contract, a letter from the solicitor or accountant acting, and proof that the buyer has the funds. What can go wrong: the deal slips or fails during due diligence, or part of the price is deferred instead of being paid on completion.
Exits at a glance
| Exit | Evidence | Main risk | Fallback |
|---|---|---|---|
| Sale of the security property | Agent's appraisal, sold prices, memorandum of sale | Slow sale or a lower price | Reduce the price early, or refinance |
| Sale of another property | Sale evidence and its mortgage balance | A sale the lender cannot control | Sell or refinance the security property |
| Buy-to-let mortgage | Decision in principle, rent estimate | Rent or value too low | Add your own money, or sell |
| Residential or commercial mortgage | Decision in principle, income or lease | Income falls short, or delay | Another lender, a smaller loan, or sell |
| Sale of completed units | Planning, costed works, sales plan | Overrun or slow sales | Development exit finance |
| Inheritance or expected funds | Solicitor's letter, grant of probate | Delay or dispute | Sell or refinance the security property |
| Business sale or capital event | Heads of terms, adviser's letter | Deal delayed or lost | Sell or refinance the security property |
Open and closed bridging
A closed bridge has an exit with a fixed date that is already certain, such as a sale where contracts have been exchanged or a mortgage offer that has been issued. An open bridge has a credible exit but no fixed date, and it is the more common of the two. With an open bridge the lender relies more heavily on your evidence and your fallback, and may price the loan a little higher. Our unregulated bridging loans page covers both.
Build in time, and what happens if the term runs out
Choose a term longer than the plan needs. Sales, building work, probate and mortgage applications run late far more often than early. Many lenders charge interest only for the time the loan is outstanding, so spare months may cost little if you do not use them. Check the offer for a minimum interest period.
If the loan is not repaid by the end of the term, three things can follow.
- Extension. The lender may agree more time. This is at its discretion, usually costs a fee, and interest keeps running. Ask well before the end date and show how far the exit has got.
- Default interest. If the term passes with no agreement, the loan is in default. A higher rate can apply and the lender's costs can be added. Our guide to bridging loan costs lists these charges.
- Enforcement. If nothing is agreed, the lender can enforce its security, which can end with the property being repossessed and sold.
If you are worried about losing your home, the GOV.UK home repossession guide names free sources of advice, including Citizens Advice, National Debtline, Shelter and your local council. It also explains the free legal advice available in England and Wales if you receive written notice to leave. The law in Scotland is different.
Checklist before you apply
- State the exit in one sentence: what will repay the loan, and by when.
- Gather the evidence for it from the table above.
- Work out the amount to repay at the end, including rolled-up interest and any exit fee, and check the exit covers it with room to spare.
- For a refinance, check the next lender's rules now: rental cover, income, property condition and how long you must have owned the property.
- Name a fallback exit and test whether it would really work.
- Ask for a term with months in hand.
What to do next
Use the bridging loan calculator to see the amount you would have to repay at the end, then read how bridging loans are assessed. If you want a second opinion on your exit before you apply, send us the details. We will tell you what evidence a lender is likely to ask for and where the plan looks weak.