Development Bridging Loans

Need more information about bridging loans for development?

Whether this is your first time seeking this kind of finance or you’re an experienced developer looking to expand your portfolio, it’s always worth reviewing all the information. 

A development bridge loan affords you flexibility. With Rapid Bridging, we’re confident that we can provide you with a quick turnaround. To arrange loans, we’ll tap into our pool of specialist lenders that have appetite. These are not like typical, mainstream lenders that will only provide traditional mortgages, which are not suitable for a lot of development projects. Bridging loans for development properties can be arranged within as little as 48 hours in some cases. 

With a property development project, getting from start to finish as quickly as possible without sacrificing quality is important to ensure both viability and profitability. With a traditional mortgage, you will be charged an early redemption penalty if you either sell the property within the tie-in period or switch to a standard residential or commercial mortgage (whether buy-to-let or owner-occupier).

A short term finance solution like a bridging loan does not feature these tie-ins.

In fact, with a short term bridging loan, you only pay interest until the day you repay the loan (except for the first 30 days during which a month’s interest is payable)

The costs involved in purchasing then refurbishing or renovating commercial or residential property are significant. Budgets required for new-build properties can be even greater. Few property developers will be able to attract the lump sum funding they need from investors but, for most, this is not an option.

In this situation, they need to look for competitive external funding from established bridging lenders instead. Development bridging loans are used to fund the purchase of property and land, the renovation/refurbishment of existing property, or the demolition of existing property and its replacement with new build property.

Development bridging finance can be used on projects involving residential properties, commercial properties, or semi-commercial properties.

A bridging loan is a specialist form of finance used to supply the money needed to start a property development project and complete it. And, because you don’t need to make monthly repayments towards the “capital” (the amount you borrowed) and the interest (the charge for borrowing the capital) if you don’t want to, you can free up more of your cash to finish your project.

Repaying A Bridging Loan Used For Property Development

You repay the capital you borrow at the “exit” event. On bridging loans for property development, the “exit” event is the event which generates the money required to repay your lender.

You can choose to make monthly interest repayments on your loan or you could roll up the interest instead and pay it off at the “exit” event with the capital – the latter is the preferred choice for most property developers for better cash flow management.

If you intend to sell the property you’ve purchased following project completion, then you use the funds from the sale to repay your loan.

If you intend to rent out the property following project completion, you’ll then need to arrange a residential or commercial buy-to-let mortgage. Your mortgage lender will then repay the outstanding bridging loan balance on your behalf.

If you intend to move into the property following project completion, then you need to arrange a standard owner-occupier residential or commercial mortgage to repay your development bridging loan lender.

Development Bridge Loans are suitable for:

• residential property (which you may live in, rent out, or renovate to sell on, and HMOs),
• mixed-use properties (buildings where 40% or more of floor space is for commercial purposes),
• land (farmland, development land with or without planning permission, and agricultural land), and
• commercial premises (warehouses, shops, restaurants, offices, hotels, factories, care homes, and more)

Whether this is your first development project or this is your line of business and you have a proven track record in developing, Rapid Bridging & Commercial Finance will quickly find the right specialist lender for you offering the most competitive interest rates and most favourable contractual terms whatever your credit history.

Who Is Eligible For Development Bridging Finance?

Rapid Bridging can arrange finance for the following: 

• Individuals
• Homemovers 
• Landlords
• Developers
• Limited companies
• SPVs 
• Offshore companies
• Charities

As well as your name and address, we’ll need to know which property or land you wish to buy, how much you’ll need to purchase it, what your plans are for it (including the likely property value at the end of your development work), and how you intend to settle the loan.

If you’re applying for a bridging loan as a limited company, we’ll need to your limited company’s name and number together with names and addresses of all directors.

Get in touch to discuss your requirements.

How much deposit do I need for a bridging loan?

For nearly all development finance bridging loans, you’ll need a deposit. 

The size of the deposit you’ll need depends on the way lenders calculate the current and potential value of the land or property you’re buying.

There are three standard measures – LTV, LTC, and LTGDV.

Some lenders consider the loan to value (LTV) ratio with a maximum LTV of 70%. Loan to value refers to the value of the building or the land you want to purchase prior to development.

In this case, if the land or property you wanted to purchase cost £500,000, an LTV of 70% would mean that they would be prepared to advance you £350,000 and you would need a £150,000 deposit.

Others consider loan to cost (LTC) – this is how much a lender will fund you towards the costs of your project (construction and associated costs, not land/property purchase costs).

And others consider loan to gross development value (LTGDV) – what a lender believes the future value of the land or property will be worth following project completion.

Lenders using LTC or LTGDV calculations will be able to advance more funds to you.

When you get in touch with us, please describe your project to us in full and we can work out which lenders are most likely to approve your application for funding and agree to lend you the amount you need for your project.

Do I get the money all at once?

This depends on the scale of the work which you propose to carry out on the land or property. For smaller developments which will not take much time to complete and which do not involve changing a building’s use (from commercial to residential, for example), do not require Building Standards compliance, and/or are permitted developments not requiring planning permission, you may be able to draw down on your entire facility straight away.

For larger projects which are more complex and which may involve work on either non-permitted developments or your project involves structural works, conversions, extensions, and so on, some development lenders may offer you the funding using staged drawdowns (where money is released in tranches dependent on the achievement of project milestones).

If you’d like to talk to us about whether the bridging loan for property development would be paid all at once or in stages, please call us on 0208 150 7528 or email us at info@rapidbridging.com.

Open bridging loans and closed bridging loans for development projects 

There are two types of bridging loan – a closed bridging loan and an open bridging loan.

With a closed bridging loan, you agree with the lender a date on or before which your loan will be paid back in full.

With an open bridging loan, there is no fixed settlement date however most bridging finance providers will expect to be paid back within 12 months of the issue of the loan. 

However, Rapid partners with many bridging lenders willing to offer development-based bridging loans for up to 36 months.

Development bridge loan interest costs

You will pay interest priced at a monthly rate with bridging finance (as opposed to, for example, the annual interest you’re charged on a standard mortgage or business/personal loan).

As stated earlier, you can choose to make monthly interest payments during the loan term.

Most developers choose the interest roll up option. However, where the capital and interest are repaid in full at the end of the loan, not having to make monthly interest payments preserves cash for construction and other associated costs while the project is underway.

The interest rates charged on development bridging loans is much higher than with standard mortgages, though provide opportunity advantages and are often uniquely ideal for certain projects. 

All the costs associated with development bridging loans

Arrangement fees

The lender will charge you an arrangement fee (sometimes called a facility fee) based on a percentage of the net or gross value of the loan amount.  The net loan balance is the amount of money you applied to borrow and the gross loan balance is the amount of money you borrowed plus arrangement fees and interest you’ve chosen to roll up or retain.

Please find below standard lenders’ facility fees charged based upon the size of loan taken out.

Lenders range from 1 – 2% per month

Valuation fees

You will need to meet the valuation fees incurred by your lender.

When you apply for bridge loans for property development, most lenders will engage a surveyor who will then produce a report on the condition and value of the property you’re offering as security.

Admin fees

Similar to the one-off admin fees you pay when you take out a standard residential mortgage, bridging lenders for development properties charge a similar fee (usually starting at around £295).

Legal fees

Your lender’s legal fees will be passed on to you, specifically the cost of drawing up the loan agreement and the cost of registering a charge on your property at the Land Registry.

Broker fees

Except in very complex cases, Rapid Bridging does not charge broker fees to our development bridging clients.