Open vs Closed Bridging Loans: Which One Is Right for You?

Bridging finance offers a fast and flexible solution to short-term funding gaps, particularly in the UK property market. But not all bridging loans are created equal. One of the first decisions you’ll face is choosing between an open or closed bridging loan. Though similar in structure, these two products differ in timelines, risk profiles, and lender expectations. Selecting the right type could determine whether your project stays on track—or gets derailed.

What Are Bridging Loans?

A bridging loan is a short-term loan secured against property or assets. Borrowers typically use it to fund a purchase, renovation, or urgent financial commitment while waiting for a more permanent source of capital—like a property sale or mortgage. Repayment is usually due in full at the end of the term, which ranges from a few months to a year.

Within the bridging loan category, there are two main types: open and closed.

What Is an Open Bridging Loan?

An open bridging loan is designed for borrowers who do not yet have a confirmed date or method for repaying the loan. You may be planning to sell a property or secure long-term financing, but the details haven’t been finalized. Lenders are more flexible with open loans, but this also makes them riskier—and more expensive.

Open bridging loans are ideal for:

• Buyers whose current home isn’t yet on the market

• Developers waiting on planning permission or sale agreements

• Investors anticipating capital inflows without fixed dates

The lack of a concrete exit strategy means higher interest rates and increased scrutiny from the lender. Borrowers must still outline a credible repayment plan, even if it’s not time-bound.

What Is a Closed Bridging Loan?

Closed bridging loans are structured with a clear and confirmed exit plan. You’ve likely already exchanged contracts on the sale of an existing property or arranged long-term refinancing with a set completion date.

Closed bridging loans are suitable for:

• Buyers with a property sale already in motion

• Individuals bridging the gap between exchanging and completing contracts

• Borrowers finalizing a mortgage with an agreed offer in place

Because of their predictable repayment timeline, closed loans tend to carry lower interest rates and offer more favorable terms.

How Do Lenders View Open vs Closed Loans?

Lenders generally prefer closed bridging loans due to their lower risk. A fixed repayment date allows them to better manage capital and forecast returns. Open bridging loans, by contrast, present greater uncertainty. Borrowers must demonstrate a plausible exit strategy even without fixed timelines—often by providing evidence of ongoing property marketing or pending finance applications.

That said, not every borrower has the luxury of a confirmed sale or mortgage offer. Open loans are often the only viable option in fluid or complex transactions.

What Should You Consider Before Choosing?

Here are key questions to evaluate:

• Do you have a confirmed property sale or refinance date?
  If yes, a closed loan may save you money in interest and fees.

• How certain are you about the timing of your repayment?
  If you anticipate delays, open loans provide more flexibility.

• What level of risk can you tolerate?
  Open loans carry more financial uncertainty, which could affect your stress levels or business planning.

• Can you afford higher interest rates for increased flexibility?
  If flexibility is worth the cost, open loans may be worth the premium.

Costs and Fees

Both loan types typically incur:

• Arrangement fees
  

• Monthly or rolled-up interest
  

• Exit fees (sometimes)
  

• Valuation and legal costs

Open loans usually have higher monthly interest due to the perceived risk, but the total cost depends on how long the loan is outstanding.

Use Cases: Open vs Closed

Open Bridging Loan

• You’re buying at auction with no sale lined up

• You’re renovating a property before putting it on the market

• You’re refinancing but still in the application phase

Closed Bridging Loan

• You’ve exchanged contracts on a home sale

• You have a mortgage offer ready with a confirmed completion date

• You’re moving between properties with a chain already in motion

Final Thoughts

The choice between an open and closed bridging loan hinges on timing and certainty. If you have a clearly defined exit route, a closed loan may offer more favorable rates and terms. If your timeline is still evolving, an open loan gives you the flexibility to adapt—at a cost.

Either way, it’s critical to assess your financial position honestly and work with experienced lenders who can advise on structure, terms, and risk. To estimate costs for either type of loan, the BridgeLoanDirect bridge loans team can help you find the right option based on your circumstances.