When bridging loans go wrong: What borrowers need to know

By Simon Nicolaides 15th April 2025

At its best, bridging finance is the grease in the wheels of the UK’s property machine, unlocking opportunity, enabling speed, and getting deals over the line where mainstream lenders fear to tread.

But bridging loans are sharp tools. And when things go wrong, when the clock runs out or the market moves against the borrower, the legal and financial consequences can be swift and brutal.

Over the past year, we’ve seen a noticeable uptick in distressed scenarios, and we’re hearing the same from lenders and brokers alike.

This piece isn’t about doom-mongering however. Bridging finance plays a vital role in the real estate economy. However, as lawyers, we’re paid to be pragmatic, and increasingly, that means helping clients avoid (or navigate) default.

Here’s what borrowers and professionals need to understand about the realities of a bridging loan gone wrong.

Default Happens Fast – And It’s Often Technical

Borrowers typically think of “default” as simply failing to make a payment. But in the world of bridging loans, default is often technical, and far broader.

Missing a completion deadline? Default.
Breach of a condition precedent (like not submitting planning documents)? Default.
Letting a property without consent, or breaching a warranty? Still a default.

Once a default occurs, even if it’s seemingly minor, the lender is usually entitled to:

Charge default interest (often at punitive rates)
Demand immediate repayment of the full loan amount (loan acceleration)
Begin enforcement action, including appointing LPA receivers or issuing possession proceedings

The key takeaway? Default doesn’t just mean you’ve stopped paying. It means you’ve tripped one of many carefully embedded triggers in the loan agreement, and the consequences can snowball quickly.

Hence the reason it is paramount to have someone on your side that will advise you asap on these terms.

The Cost of Default: More Than Just Interest

When a loan tips into default, the financial picture can change dramatically, and fast.

Default Interest

Most lenders reserve the right to charge significantly increased rates the moment a default occurs, even if it’s a technical breach. On a £500,000 loan, an extra 2% per month adds £10,000 every single month.

Enforcement Costs

Legal fees, receivership costs, surveyor reports, asset management charges, all of these are recoverable from the borrower under standard loan terms. They can easily run into the tens of thousands.

Exit Fee Traps

In many cases, exit fees still apply even if the borrower repays the loan under pressure. And early redemption penalties may be waived at the lender’s discretion, or not at all.

We’ve seen scenarios where borrowers thought they’d cleared the loan, only to find they still owed tens of thousands once all fees and interest were added. It’s not pretty.

What Does Enforcement Actually Look Like?

If a lender decides to enforce, the options vary depending on the loan structure and whether the property is commercial or residential.

Possession Proceedings
A straightforward route if the loan is secured on a single property. The lender applies to court for an order for possession, and the property is sold to recover the debt.

Where the loan is secured over an investment property (e.g. buy-to-let or commercial), the lender can appoint Law of Property Act receivers. These receivers take control of the property, collect rent, and manage a sale.

Personal Guarantees & Cross-Collateralisation

Most bridging lenders will require personal guarantees, and many deals involve multiple securities. So even if the main property is sold, the lender may still pursue the borrower personally, or enforce over other secured assets.

These processes are often presented as routine, but the reality is stressful and high-stakes for borrowers. And lenders, particularly institutional or well-funded ones, are increasingly assertive in pursuing full recovery.

Is There Room to Negotiate in Default? Sometimes

Despite the aggressive tone of most loan agreements, lenders aren’t always eager to enforce. Repossessing and selling a property takes time, money, and introduces risk.

In many cases, there’s an opportunity for pre-enforcement negotiation:

Short extensions, often in exchange for a fee, for example 1% of the loan at the time
Interest-only arrangements, to allow for sale or refinance
Discounted early settlement (rare, but not impossible)
Staged repayment plans, particularly where multiple properties are involved

But make no mistake, lenders want certainty. If you’re going to ask for time or a deal, bring a clear plan, realistic timelines, and preferably a broker or solicitor who can help land the ask.

The Real Work Is Done at the Start

For us as lawyers, the real value comes before the ink is dry. We are used to dealing with the following:

Due diligence on the borrower’s exit plan, is it credible? Is there fallback?
Forensic review of the facility agreement, especially default clauses, interest hikes, and lender discretion
Advising on security structures, what’s actually at risk? Is the PG capped? Are charges being stacked?

Too often we’re asked to advise when the deal is already underwater. And while we’ll always do what we can, the best protection is legal input before the loan completes.

Bridging loans have their place, and in a market where agility is often king, they remain absolutely essential.

If you’re entering a bridging deal, or trying to exit one under pressure, the right legal advice isn’t just useful, it’s critical.

At PNN LAW, we’ve advised lenders and borrowers across the spectrum, from boutique lenders with a handful of loans, to borrowers with complex portfolios.

If you’re navigating bridging finance, we’re happy to talk, before it gets messy.

Simon Nicolaides is the Managing Partner at PNN LAW, a boutique London law firm specialising in real estate finance, commercial property, and bridging loan transactions.

Simon advises developers, lenders, and investors on complex property matters with a particular focus on speed, structure, and commercial risk.

He is known for his pragmatic, deal-driven approach and works closely with brokers and lenders to get transactions over the line.

To speak with Simon directly, email snicolaides@pnnlaw.co.uk or connect via LinkedIn: https://www.linkedin.com/in/simonnicolaides/