What happens if you can't repay a bridging loan?

Every bridging loan is agreed for a fixed term, and the borrower is expected to repay it in full by the end of that term through the exit strategy agreed at the outset, typically a sale, a remortgage or a rebridge onto a new facility. Being unable to repay simply means that exit has not happened by the agreed date, for example a sale has not completed, a mortgage offer has not come through in time, or a development is not yet sold or let.

This is different from missing a monthly payment, since most bridging loans roll up interest rather than collecting it monthly. The point of pressure is the end of the term itself.

Delays are usually practical rather than a sign of a badly planned loan. Common causes include a property sale taking longer to complete than expected, a mortgage application being delayed by valuation or underwriting queries, a development taking longer to finish, sell or let than planned, or a chain elsewhere collapsing and needing to be rebuilt.

None of these are unusual in UK property transactions. What matters is spotting the delay early enough to do something about it, rather than only reacting once the term has already run out.

The single most useful thing a borrower can do is contact the lender before the term ends, not after. Lenders who arrange bridging finance expect some exits to run behind schedule, and most are prepared to discuss options with a borrower who raises the issue early, with evidence of what is actually happening, such as a solicitor's update on a sale or a mortgage offer in progress.

Leaving it until after the term has expired removes options, since by then the lender is reacting to a loan already in default rather than helping plan around a delay that is still in hand.

Depending on the case, a borrower facing a delayed exit generally has a small number of realistic routes:

• An extension to the existing loan, agreed with the current lender, to allow a bit more time for the original exit to complete
• Refinancing onto a new bridging facility, sometimes called rebridging, where a new lender repays the existing loan and a fresh term begins
• Bringing the exit forward, for example by reducing an asking price to secure a faster sale, or pushing a mortgage application through more quickly

Which of these is realistic depends on the property, the loan to value, and how close the actual exit is to completing. A broker who can look across the whole market is often best placed to work out which option fits.

If a bridging loan term passes with no extension, refinance or repayment agreed, the loan moves into default. Most bridging agreements allow the lender to charge default interest from that point, which is higher than the rate charged during the term, and can also apply additional fees.

If the position is not resolved, the lender can ultimately take recovery action against the secured property, which in the most serious cases means repossession or a forced sale to recover what is owed. Lenders generally prefer not to reach this point, since it is costly and slow for them too, which is why early contact and a workable plan matter so much.

The general path, contact the lender early, look at extension or refinance, and default interest and recovery action if nothing is arranged, applies either way. Where the loan is regulated, secured on a home the borrower or an immediate family member occupies, the lender and any firm directly authorised by the Financial Conduct Authority involved in the case are expected to treat a borrower in difficulty fairly and consider forbearance options.

Where the loan is unregulated, secured on commercial, investment, buy to let or refurbishment property, those specific protections do not apply in the same way, though most lenders still prefer a negotiated solution over enforcement action.