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Get in touch for a free, no-obligation appointment about how our advisers can help you with a property development bridging loan.
A bridging loan is a secured, short-term loan that can be used by businesses and individuals who need to obtain significant funds quickly. This makes them an ideal way to take advantage of imminent business opportunities, such as an auctioned property.
Bridging loans can be used for most property development finance in both a residential and commercial capacity.
When you have an opportunity requiring fast payment, such as an auction property, bridging finance for property development can solve cash flow issues.
As there are not many mortgage options open to those looking to buy mixed-use properties, Bridging loans can be useful for the purchase of existing mixed-use properties or properties and land purchases for future mixed-use.
Bridging loans can be used to purchase property refurbishment projects that would not be accepted for mortgage finance. Mortgage Lenders will not consider derelict buildings or land and properties without existing planning permission.
Property developers who wish to buy land for the purpose of residential or commercial developments can access up to £500 million in Bridging Finance, depending on assets they have available as security. Most Bridging Finance lenders will also consider financing for land that has no planning permission in place.
A typical Bridging Loan can be taken for between one and twelve months. If you utilise bridging finance for property development, it is sometimes possible to borrow for longer, with terms as long as thirty-six months.
If you don’t need the total amount at one time, it’s possible to obtain the loan in separate payment installments.
Since interest is charged on the amount borrowed, using installments can be more cost-effective. It is useful to pay for the build costs in development projects with a number of distinct phases.
Perhaps the biggest advantage of using bridging loan for property development is how quickly they can be arranged. Unlike the mortgage route, whereby months pass prior to accessing the loan, Bridging Loans can be organised in as little as five working days.
When you buy a property at an auction, it will need to be fully paid for within 28 days of purchase, so Bridging Loans are particularly useful for this purpose.
With the development bridging loan, you get the option to pay off your interest monthly as you go or ‘roll up’ (defer) the monthly interest and pay it all off in a lump sum at the end of the loan term.
As Bridging Loans are secured, they offer the opportunity for a high Loan to Value. It’s possible to secure a loan of up to 80% towards the purchase cost, which will ordinarily be secured against the development property or site.
It is possible to achieve an even higher Loan to Value amount if you offer additional assets as a second charge option. Lenders will accept a wide range of assets as second-charge options, from high-value cars and properties in your existing development portfolio to fine art and investment portfolios. This will vary from lender to lender.
In order to secure a Bridging Loan of any type, it is vital to have a viable exit strategy in place. An exit strategy is the method of payment that you will use to repay the loan and can include the sale of the development property or land on which you’re securing the loan or the sale of existing developments.
Those without an existing portfolio may choose to refinance with a Buy-to-Let Mortgage, utilising the Bridging Loan as a stopgap until the Mortgage Finance is available.
Bridging Loans interest rates are calculated monthly and start at around 0.44%. On top of this, arrangement fees of around 1-2% of the total loan amount are standard. The use of installments can reduce interest considerably due to the monthly calculation method.
Bridging Development Finance is not usually available on the high street but from private banks and specialist lenders. It’s very unusual for this type of organisation to deal directly with members of the public, so you’ll ordinarily need to access this type of finance via a Mortgage Broker.
An authorised and regulated Mortgage Broker can offer unbiased advice about the range of bridging finance options available to you based on your individual circumstances. They will also bear much of the administrative burden of your Bridging Loan application, saving you time and stress.
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage / financial advice and work only for firms who are authorised and regulated by the Financial Conduct Authority.
They will offer any advice specific to you and your needs. Some types of buy to let, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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