Understanding What is the Typical Interest Roll-Up in Bridging Loans?
13th February 2026
By Simon Carr
Bridging finance, a specialist form of short-term lending, typically operates on a rolled-up interest basis. This means the borrower is not usually required to make monthly repayments; instead, the interest is calculated monthly and accrued, being added to the total loan balance. The entire combined sum (original principal plus accrued interest) is then repaid in a single lump sum when the property or asset sale, or refinancing, is completed, usually within 12 to 18 months.
Understanding What is the Typical Interest Roll-Up in Bridging Loans?
Bridging loans serve a vital function in the UK property market, providing rapid access to capital to “bridge the gap” between a financial need and the availability of long-term funding or the completion of a property sale. However, due to their short-term nature and the higher risk profile they often carry, the structure of interest repayment differs significantly from traditional mortgages. The roll-up mechanism is central to this specialist finance area.
As experts in specialist lending, Promise Money can clarify what is the typical interest roll-up in bridging loans, how it is calculated, and what factors influence the final repayment figure.
The Mechanism of Interest Roll-Up
Interest roll-up is the standard method for structuring repayments on most UK bridging loans. It contrasts sharply with conventional loans, where monthly instalments are typically required to cover both interest and a portion of the principal capital.
What Does ‘Rolled Up’ Interest Mean?
When interest is rolled up, the borrower is effectively postponing all payment obligations until the end of the agreed loan term. Here is how it operates:
- Calculation: Interest is calculated monthly, usually based on the outstanding principal balance.
- Accrual: Instead of being paid to the lender, this monthly interest is added to the total debt owed (the loan principal).
- Repayment: The accumulated interest, alongside the original loan amount (the principal), is repaid in full when the loan matures or the exit strategy is executed.
This structure is highly appealing to borrowers who need cash flow flexibility during the bridging period—for example, property developers who need all available capital for refurbishment or individuals buying a new home before selling their current one. They are spared the immediate burden of monthly debt servicing.
Typical Interest Rates
It is important to understand that bridging loan interest rates are almost always quoted monthly, not annually (as with standard mortgages). While the annual percentage rate (APR) is legally required to be stated, the monthly rate provides a clearer indication of the short-term cost.
Typical monthly interest rates for bridging loans in the UK generally range from:
- Lower End (Prime Residential/Low LTV): 0.6% to 0.8% per month.
- Mid-Range (Standard Buy-to-Let/Commercial): 0.8% to 1.2% per month.
- Higher End (High LTV/Challenging Security/Adverse Credit): 1.2% to 1.5% or higher per month.
These rates can vary significantly based on the lender, the perceived risk of the deal, the loan-to-value (LTV) ratio, and the quality of the exit strategy.
Detailed Example: Calculating Rolled-Up Costs
Understanding the final cost requires careful calculation, as rolled-up interest means the total repayment figure can grow substantially over the loan term.
Let’s assume a simple scenario:
- Loan Amount (Principal): £200,000
- Monthly Interest Rate: 1.0%
- Loan Term: 6 months
Simple Interest Calculation (Non-Compounding Example)
In the simplest model, where interest is calculated only on the original principal (which is common for some bridging structures, though less frequent for terms over 12 months):
- Monthly Interest: £200,000 x 1.0% = £2,000
- Total Interest Over 6 Months: £2,000 x 6 months = £12,000
- Total Repayment Due: £200,000 (Principal) + £12,000 (Interest) = £212,000
Compounding Interest Calculation (The More Common Reality)
Many bridging loans, especially those extending towards 12–18 months, operate on a compounding basis. This means that each month, the interest is calculated not just on the original principal, but also on the interest that has already accrued and rolled up. This significantly increases the total cost.
| Month | Starting Balance | Interest (1.0%) | Ending Balance |
|---|---|---|---|
| 1 | £200,000.00 | £2,000.00 | £202,000.00 |
| 2 | £202,000.00 | £2,020.00 | £204,020.00 |
| 3 | £204,020.00 | £2,040.20 | £206,060.20 |
| 4 | £206,060.20 | £2,060.60 | £208,120.80 |
| 5 | £208,120.80 | £2,081.21 | £210,202.01 |
| 6 | £210,202.01 | £2,102.02 | £212,304.03 |
In this compounding example, the total repayment due after 6 months is £212,304.03. While the difference (£304.03) might seem small over six months, the compounding effect becomes highly pronounced over longer terms or with higher interest rates. It is crucial to confirm with your broker or lender whether the interest is calculated on a simple or compounding basis.
Factors Influencing Rolled-Up Interest Rates and Costs
Lenders assess several key factors before determining the monthly rate offered, and consequently, the total rolled-up debt.
1. Loan-to-Value (LTV) Ratio
The LTV ratio is arguably the most significant factor. This is the amount borrowed relative to the value of the security property. A lower LTV (e.g., borrowing 50% of the property value) means the lender is taking less risk, as the security provides a substantial equity cushion. Lower LTVs typically attract lower interest rates (e.g., 0.6%–0.8%). Higher LTVs (up to 75% or 80%) pose a greater risk and usually result in higher monthly rates.
2. The Type of Bridging Loan
Bridging loans are categorised primarily as open or closed:
- Closed Bridging Loans: These loans have a fixed end date because the exit strategy (e.g., the sale of an existing property) is already legally confirmed (e.g., exchange of contracts). Because the repayment certainty is high, these loans usually attract lower interest rates.
- Open Bridging Loans: These loans do not have a guaranteed exit date, although a maximum term is set (typically 12 months). They are used when the exit (e.g., refinancing or property sale) is anticipated but not yet certain. Due to the inherent uncertainty, open bridging loans generally carry higher monthly interest rates.
3. Security and Purpose
The type of property being secured also impacts the rate. Residential property, especially owner-occupied or standard buy-to-let properties, generally attracts lower rates than complex commercial property or land development deals.
4. Borrower Profile and Credit History
While bridging loans are primarily asset-backed (secured by property), the lender will still assess the borrower’s ability to execute the exit plan. A borrower with a clean financial history and a strong track record of successful property transactions may secure a better rate.
When preparing to apply for any specialist finance, understanding your current financial standing is essential. Reviewing your credit file helps ensure the information lenders see is accurate. Get your free credit search here. It’s free for 30 days and costs £14.99 per month thereafter if you don’t cancel it. You can cancel at anytime. (Ad)
Alternative Payment Methods: Service Interest
While the rolled-up structure is typical, some bridging lenders may offer or require ‘serviced interest’ bridging loans, particularly for terms exceeding 12 months or when the borrower has a very robust income stream.
- What is Serviced Interest? This involves the borrower making monthly payments solely to cover the interest accrued that month. The original principal remains untouched until the end of the term.
- Benefit: This structure prevents compounding and keeps the final repayment figure lower, improving the debt-to-value ratio at the exit.
- When Used: Lenders prefer this if the borrower’s income is high, or if the borrower wants to mitigate the risk of a high accrued debt, thereby protecting their equity stake.
However, if a borrower opts for serviced interest but then misses payments, they risk moving into default, which can jeopardise the entire loan agreement.
Compliance, Risks, and Consequences of Default
Bridging finance, like any secured lending, carries significant risk, especially given the rapid accumulation of rolled-up interest and the short repayment timeframe.
The Importance of the Exit Strategy
The success of a bridging loan hinges almost entirely on the successful execution of the exit strategy. If the planned exit—be it the sale of a property, the finalisation of a long-term mortgage, or receipt of development funds—is delayed or falls through, the borrower must find an alternative repayment method quickly.
If the loan term expires and the borrower cannot repay the substantial rolled-up debt, severe consequences follow. This is a critical regulatory point that must be fully understood before committing to a bridging loan:
Your property may be at risk if repayments are not made.
Consequences of Default
If the borrower defaults on the repayment obligation at the end of the term, the lender can take several actions:
- Increased Interest and Charges: Default usually triggers significantly higher interest rates, often punitive rates designed to encourage immediate settlement. Additional legal and administrative charges will also apply.
- Legal Action: The lender will initiate legal proceedings to recover the debt.
- Repossession: As the loan is secured against the property, the lender ultimately has the right to seek repossession and sale of the asset to recoup their capital and accrued interest.
Given the speed and size of bridging debt, managing financial difficulties proactively is crucial. If you anticipate issues with your planned exit, you should immediately communicate with your lender or broker. For impartial advice on managing debt or financial uncertainty, reliable resources are available, such as MoneyHelper, a service backed by the UK government.
The Role of Brokers in Bridging Finance
Navigating the bridging loan market, especially when comparing roll-up structures, fees, and rates, can be complex. Specialist brokers, such as Promise Money, play a crucial role by:
- Accessing the Market: Brokers have access to a wide panel of lenders, including niche providers, who may offer more favourable terms or flexible roll-up conditions than those available directly to the public.
- Calculating True Cost: A broker can accurately model the rolled-up interest, incorporating all associated fees (arrangement fees, exit fees, legal costs) to provide a clear figure of the total debt due at the end of the term.
- Negotiating Terms: They can negotiate whether interest will be calculated on a simple or compounding basis, which is vital for long-term bridge profitability.
- Structuring the Exit: They ensure the proposed exit strategy is robust and accepted by the lender, mitigating the risk of default.
People also asked
How often is bridging loan interest charged?
Bridging loan interest is typically calculated daily and charged to the loan balance monthly. Although the calculation is continuous, the balance adjustment and accrual (the roll-up) usually happen at the end of each calendar month during the loan term.
Are arrangement fees included in the interest roll-up?
Not always, but often yes. Arrangement fees (typically 1–2% of the loan amount) and sometimes the lender’s legal fees can be added to the principal and rolled up alongside the interest. This reduces the upfront cash required by the borrower but increases the total debt accruing interest.
What is the maximum term for a typical interest roll-up bridging loan?
The vast majority of bridging loans are structured for terms between 6 and 18 months. While some specialised development finance might extend to 24 months, standard residential bridges rarely exceed 12 to 18 months, as the rapid interest roll-up makes longer periods financially impractical for most borrowers.
Do I have to pay an exit fee on a bridging loan?
Many bridging lenders charge an exit fee, often expressed as a percentage of the original principal (e.g., 1%). This fee is usually due at the same time as the final repayment of the rolled-up debt and is a significant component of the total cost structure that must be factored into the affordability assessment.
Is rolled-up interest compounding interest?
It can be, but not always. Rolled-up interest means the payment is deferred. Compounding interest means the subsequent month’s interest is calculated on the higher balance (principal + accrued interest). Borrowers must clarify with the lender whether the roll-up mechanism uses simple interest (calculated only on the original principal) or compounding interest, as this materially affects the final debt figure.
Summary of Bridging Loan Roll-Up Costs
The typical interest roll-up in bridging loans provides unparalleled flexibility, allowing borrowers to acquire or refurbish property without immediate cash flow commitments. However, this convenience comes with a high price tag relative to long-term financing, primarily because the interest is charged at high monthly rates and accumulates rapidly.
To successfully use bridging finance, borrowers must secure competitive monthly rates (ideally below 1%), accurately calculate the total rolled-up cost (including all fees and compounding effects), and, most critically, possess an assured and timely exit strategy. Failure in the latter point can lead to severe financial consequences, including the potential loss of the secured property.