Data analysis shows bridging rates holding steadier as BTL costs rise
Bridging loans have shown greater resilience than buy-to-let mortgages in the current high-rate environment, new analysis from Octane Capital has found.
Drawing on data from Bridging Trends and the Bank of England, the specialist lender noted a marked shift in the relative cost of the two lending options over the past three years. While bridging finance was once significantly more expensive, the margin has narrowed considerably.
In late 2021, when the Bank of England base rate stood at 0.1%, a typical 75% loan-to-value two-year fixed buy-to-let mortgage carried an annual rate of 1.67%. At the same time, bridging loans averaged 9.24% annually — over five times the cost of a standard buy-to-let deal.
By the final quarter of 2024, however, with the base rate at 4.5%, average buy-to-let rates rose to 4.28%. Meanwhile, bridging rates saw only a modest increase to 10.44%, making them just 2.44 times more expensive than their buy-to-let counterparts.
This shift has made bridging a more viable option for some investors, particularly since such loans are typically used for short-term needs and not intended to be held over long periods.
Bridging loan activity has continued to grow, with completed transactions reaching £2.3 billion in Q4 2024. This contributed to a 14.4% increase in total outstanding loan volumes, which climbed to £10.3 billion. Further expansion is anticipated, with the market projected to hit £12.2 billion by the end of 2025.
Octane Capital highlighted arrangement fees as a key factor supporting bridging finance. Bridging loans often carry fees between 1% and 2%. On a £200,000 loan, a 1.5% fee equates to £3,000.
By comparison, a typical buy-to-let mortgage has an average arrangement fee of 4.75%, or £9,500 on the same loan amount. Although bridging rates are higher, their shorter terms — often under 12 months — mean total costs can be more competitive when factoring in both fees and interest.
The lender estimates that the total first-year cost of a £200,000 buy-to-let loan would be £18,060, equating to an effective interest rate of 9%. For a bridging loan, the combined cost over the same period would be £23,880, or 11.9%.
Monthly interest on bridging finance fell from 0.92% in Q4 2023 to 0.87% a year later. Meanwhile, buy-to-let rates also declined, with 75% LTV two-year fixed deals dropping from 5.59% to 4.28% over the same period. This suggests a generally more favourable lending environment for property investors, regardless of loan type.
“It’s been a more challenging environment for investors in the past few years, as a higher bank base rate has made it harder to make a return,” said Jonathan Samuels (pictured), chief executive of Octane Capital. “However, there’s evidence that bridging lenders are doing more than the mainstream market when it comes to keeping costs manageable for investors, as the difference in rate is closing compared to mainstream buy-to-let mortgages.”
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