Bridging finance for property development

Bridging finance for property development is a short-term loan secured on a site or building that is part of a development project. It is typically used to buy a site quickly, hold it while planning permission is obtained, fund light works, or refinance a completed scheme. It is repaid by a sale, a refinance or longer-term development funding.

Development bridging is usually unregulated, because the borrower is acting as an investor or developer rather than buying a home. Lenders look at the site value, the planning position, the borrower's track record and the exit route, and they set the loan-to-value case by case.

Bridging and development finance are related but used at different stages. A bridging loan is usually released in one advance against the current value of the property. Development finance is released in stages as building work is completed and checked by a monitoring surveyor, and it is designed for ground-up builds and major conversions.

Some projects use both: a bridge to buy the site and secure planning, then development finance to build, then a bridge to exit. Where the work is mainly renovation rather than construction, a refurbishment bridging loan is often the closer fit, because it can include funds for the works.

Developers often use bridging loans to buy a site at auction or to secure a site before a competitor, then arrange development finance once planning is in place. Sites with planning permission are generally treated as lower risk than sites without, because their value and future use are easier for a lender to establish.

Lenders want to see the planning documents, any conditions or obligations, and a realistic plan for the next stage of funding. Lenders also check the access, services and any section 106 obligations. Bare land without planning is assessed differently, and the options are covered on the page about land bridging finance.

A development exit bridge is a bridging loan taken out when building work is finished, or nearly finished, to repay the development finance. It gives the developer more time to sell or let the units, and it can reduce the monthly cost compared with staying on development finance after completion. The new loan is repaid from unit sales.

Lenders usually want building control sign-off or a completion certificate, or a clear path to it, before they offer an exit bridge. They also look at the sales evidence, the remaining units and the agent's pricing. Exit bridges can also release some profit before every unit has sold.

The costs include interest, usually quoted monthly, arrangement fees, exit fees where they apply, valuation, monitoring and legal fees. Interest on development bridging is often rolled up or retained, because the site produces no income until it is sold or let. The total depends on the loan size, the term, the loan-to-value and the risk of the project.

Comparing several lenders helps because criteria for development sites vary widely. Bridging loan brokers who work with developers can compare lenders that cover a particular scheme type, size and location.