Bridging Loans for Property Development
Looking for a bridging loan for property development? It can be done! Find out all the steps you need to take to get this type of finance in our expert guide.
Firstly, are you looking for a Bridging Loan?
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: April 19, 2022
Bridging finance is a common way to get development projects started or finished, particularly when you need to borrow money quickly. Funds can sometimes be made available in a matter of hours in some circumstances and it rarely takes more than a fortnight.
In this article, you’ll learn how a broker can help you find the right specialist lender when you need short-term finance to be able to continue with your property development project.
The following topics are covered below...
Can bridging finance be used for property development?
Yes! Bridging loans are a developer’s best friend and can be the key to grabbing an opportunity before somebody else snaps it up.
They can also help you complete a development if other options are taking too long to arrange. Bridging finance can secure the funds you need to complete the work, sell the property and realise your profit.
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When is it the right move?
As a bespoke lending product built around your circumstances there are really no limitations on when bridging finance can be used. If you need cash in a hurry and can demonstrate the ability to repay it, it’s just a case of finding the right lender.
The most common examples of when bridging loans are used are:
- Renovation and development (including buy to let)
- Unmortgageable properties (bridging finance can be used to get it into a habitable state before moving to a more traditional method of finance)
- Purchasing land with or without planning permission
- Buying at auction (you typically need to get your finance together within 28 days)
- Completing a project that has gone over budget or needs to be finished quickly
- Self-build projects
This is not an exhaustive list and if you think bridging finance is the solution to a development issue you’re facing, you should get in touch with a broker in the first instance to discuss your circumstances.
How a broker can help
Due to the high costs of bridging finance and the speed with which you need to complete it, you should always consult a specialist broker who has industry knowledge and can help you secure the best possible rates from the whole of the market. Many providers in this niche do not accept direct applications and will only go through brokers.
We work with brokers who are experienced in this sector and will quickly identify the right lender for your project. They will then act as an advocate to help you secure the finance you need and begin or finish your development.
If you get in touch, we can arrange for an advisor with experience in this particular field to contact you straight away.
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How do bridging loans work in these circumstances?
Bridging loans are pretty straightforward and the biggest challenge is finding the most suitable lender. Providers in this niche are used to working at speed and applying an agile approach to underwriting.
As long as you have a sound development plan for your property project and can show the lender that you will be able to repay the loan you should be in a strong position. Factors that will be taken into consideration include:
- How you intend to use the funds – how many properties are you intending to build, for example
- The strength of your exit plan – are you planning to sell the development or do you need more long-term finance once the development has been completed?
- Your current financial position
- Credit history of all stakeholders
- The size of your deposit (40% and above is preferred for the most favourable rates, you may be able to get 100% loan to value if you put up other assets)
- The desirability of the area in which the project is being undertaken
- Your experience as a developer or that of other stakeholders
Loans are generally taken out over 12-18 months but many providers do not charge early settlement fees so you can usually settle as soon as the funds come through, you are able to switch to a mortgage, or you sell the newly developed property.
For commercial development projects in industries considered higher risk such as hotels or B&Bs, your pool of lenders will be even more limited and you may need to provide a business plan.
As development projects rarely generate income prior to completion, interest roll up options are available with most lenders so you pay the interest off when you settle the loan. This does mean you will pay interest on top of interest but can be the difference between the project going ahead or not.
Bridging loan calculator
Using our bridging loan calculator below you can get an approximate idea of how much your monthly repayments could be. Simply enter the details for the loan amount, property value and term length. You can also input different interest rates to see how your payments could change depending upon the rate you can get from different lenders.
Bridging Loan Calculator
This calculator will tell you how much your bridging loan will cost each month and work out your loan-to-value ratio to give you a better idea of whether your finance agreement is affordable.
Total monthly payment:
Now that you have a clearer idea of how much your loan will cost, you should speak to a bridging finance broker to explore all of your options and boost your chances of getting the best deal possible.
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Great, 5 star efficient service. Would recommend
Alternatives to bridging finance
Bridging loans are often the best funding solution but there are other alternatives to consider when you need quick access to cash:
- Partnering with another developer to share costs. This also means you will need to share profits.
- Dipping into your savings. This could leave you in a vulnerable position financially.
- Development finance. Cheaper, less flexible and usually takes longer to apply for. A bridging loan is often used to secure a site prior to development finance being approved.
Get matched with a specialist bridging loan broker
Going it alone and trying to identify the right bridging finance provider with the added pressure of time is extremely difficult. Indeed, it’s highly likely you’ll snatch at the first deal you’re offered with no real idea whether it is the best available.
The brokers we work with have extensive working knowledge and experience of the bridging finance industry. They will be able to select the most appropriate lender from the whole of the UK market within a matter of hours of speaking to you to understand your circumstances and the details of your development project.
Call today on 0808 189 0463 or enquire online to arrange a no-obligation chat.
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About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!