Bridging Loans For Property Development

28-February-2023 15:29
in Development
by Sam Hodgson
Bridging Loan for Property Development

Bridging finance for property development can make all the difference when it comes to getting a development project underway fast, and, affordably – yet, many people don’t fully understand all their options.

Oftentimes, traditional mortgages can prove far too slow a method for borrowing quickly in order to finance property development. But property development loans are typically only accessible from private or specialist lenders. So it is little wonder that many do not know how to find the best solution for their project.

Throughout this guide, we’ll showcase the uses of bridging loans for property development, how they work, how much they cost, and how much you can expect to borrow.

And while you're here, check out our award-winningproperty development bridging service

Skip to:

What are property development bridge loans?

How does a property bridge loan work?

How are they useful for property developers?

What does a development bridge loan cost?

How much can I borrow with bridging finance?

What type of properties can a bridge loan be used for?

How can I get a bridge loan for property development? 

What are property development bridge loans?

Bridging finance – or bridge loans – are general, catchall terms that essentially describe a short-term financial loan which covers many aspects of financing property.

A bridge loan’s most common use is for “bridging the gap” between buying a new property and selling an existing one – the main difference between bridging and traditional borrowing is its speed and flexibility of use.

When it comes to property development, a bridge loan functions exactly the same – its purposes (if you’re a property developer or investor) simply change based on your needs.

Get Quote »

How does a property bridge loan work?

Property development bridge loans work like any other type of bridge loan or short term financing. A bridge loan is secured against the property, or properties, being developed or invested in.

Here’s how it all typically works:

Application – Property developers apply for a bridge loan with a lender, providing all necessary details, such as; the scale and scope of the project, their individual finances, and information about the property(s) being developed. A popular option is to use a property development loan broker to help identify the most suitable lenders and negotiate better rates.

Approval – A lender will review an application and determine approval through their own set of criteria, of which terms can differ from lender to lender and are also dependent on the situation. A lender will determine the terms, how long the loan will last, the interest rates, repayment, and any additional fees that may apply.

Bridging Loan for Development Project

Funding – When a loan is approved, lenders provide the funds – with the aid of a good broker; this can happen very quickly (within two weeks, depending on complexity). The funds can then be used for the purposes of the borrower. In the case of property development, this might entail construction costs, renovations, or other improvements and related expenses associated with the project.

Development – With funds to hand, an investor or property developer can then complete their project, with an expectation that they will be able to later refinance or sell the property(s) that the bridge loan was secured against.

Repayment – When it comes to repaying the loan, the developer repays the bridge loan according to the terms set by the lender – this may include variances depending on the specific loan in question. Typically, a loan is repaid in full with the sale of the property(s) the bridge loan was secured against, alongside interest payments which can have multiple methods of repayment – including an option to roll-up interest to be paid in full at the end of the term.

For more details, watch our video: Bridging Loans Explained: Costs, Timescales, Examples, & How To Get One.

How are they useful for property developers?

As previously mentioned, bridge loans can be organised very quickly – and when it comes to property development and the potentially large costs involved, this can be very useful to get a project off the ground.

The funds secured through a property development bridge loan can be used to cover all associated costs. For property investors, bridging finance can be used to take action quickly on investment opportunities that arise, allowing them to capitalise on a profitable development project.

Without the funds to hand, investors might miss out on lucrative opportunities – this is the main reason why this type of finance is used best by experienced developers, as it can be the only alternative when bespoke solutions, and fast financing, are needed.

With development loans, borrowers have access to larger-scale projects – their ambitions can be more easily met with short-term financing as traditional borrowing oftentimes proves far too slow

Get Quote »

What does a development bridge loan cost?

With property development, costs can sometimes exceed the initial expectation if they’re not clearly explained and laid out in advance (this is where a broker can help). If financing with a bridge loan, it is essential that a solid exit strategy is in place before taking out a loan (this is something a lender will require)

With a bridge loan, costs can vary depending on a few notable factors:

Loan Size – Property development loans are typically much larger than the average bridge loan due to scale. Naturally, this affects the cost overall – the higher the loan amount, the bigger the cost. The loan size and the LTV (Loan-to-value) will always affect a lender’s criteria.

Interest rates – Interest rates for property development loans are much higher than traditional forms of borrowing. Beneficially, there are typically multiple ways to repay interest rates, including; rolled-up interest payments, the standard monthly payments, or a retained interest method.

Additional fees – With bridging finance, there are a number of additional finances associated. These may be; valuation fees, arrangement fees, and legal fees. The costs of these fees will also vary depending on the lender and their terms.

Property development bridging loan

With large-scale projects or property development of any kind – whether simple renovation of one property or investment opportunities for multiple properties - it is very important to consider your overall costs. It is not unusual that development projects run over on costs, and delays are often an inevitability that borrowers must be prepared for.

Even if you are an experienced investor or property developer, the help of an expert bridge loan broker can be invaluable when it comes to finding the right lender and the best possible property development loan.

For an initial idea of cost and repayment, you can use our bridging loan calculator to get a quote

How much can I borrow with bridging finance?

Bridging finance for property development can be secured from £100,000 up to £25M – with lower rates for loans over £1M.

How much you can borrow will depend on the property's value, the amount of equity you have in the property, your loan-to-value (LTV) ratio, and your ability to repay the loan.

Typically, property development loans can be secured with LTVs up to 80% - depending on asset value and could potentially be higher with additional assets.

Depending on the lender, the amount you can borrow will be affected by your own situation and creditworthiness – with a property development loan; you would likely need to provide additional detail to lenders, such as; a business plan, projections which demonstrate the viability of a development project (if on a large scale) and, of course, a reassurance on your ability to repay the loan through an exit strategy.

To get the best possible deal, it is recommended that you seek out a reputable lender – and an expert bridge loan broker can help here by determining your borrowing capacity and ensuring you're getting the best terms possible for your property development loan. 

Book Consultation »

What type of properties can a bridge loan be used for?

Bridging finance can be used for a number of different properties, especially when it comes to property development. Here are some:

Residential properties – including single occupancy properties, Buy-to-lets, HMOs, and any apartment buildings.

Commercial properties including office buildings, retail spaces, industrial properties, warehouses etc.

Mixed-use properties – These are properties that have a combination of residential and commercial units, such as a building with retail spaces on the ground floor and apartments on the upper floors.

Auction propertiesbridging finance can be used to purchase properties at auction and properties that may be in an unmortgageable state.

LandThis can include undeveloped land or land that is slated for development, such as a property that has been zoned for residential or commercial use – an investor can make use of a property development loan to build on a site, or develop and renovate existing property.

Development Bridging Loan Case Study

Need a bridge loan for property development?

At Clifton Private Finance, we can facilitate a property development bridge loan via a number of specialist lenders across the entire short-term market – loans of this kind are typically only available from private and specialist lenders. Without a broker, they can be difficult to approach directly. We can ensure you get to the right lender for your property project and get the best possible rates.

Whether you are a property developer or investor – we can get you a decision in principle quickly, for whatever your purposes are for a property development loan.

With our expertise and depth of knowledge, we can find you an appropriate lender with favourable rates.

Call us on 0117 959 5094 Or click here to make an online enquiry with us.