Are Property Development Finance and Bridging Loans the Same?

Discover which property finance option suits your project best.

Compare development finance and bridging loans with expert UK insights.

Are Property Development Finance and Bridging Loans the Same?

Discover which property finance option suits your project best.

Compare development finance and bridging loans with expert UK insights.

Property investors and developers across the UK face a common challenge when funding their projects – choosing between development finance and bridging loans.

Selecting the right funding can mean the difference between a profitable venture and a missed opportunity.

Let’s examine how these two finance options work in practice, what sets them apart, and which one might best suit your next property project.

Development Finance

Development finance helps fund major construction and renovation projects through a staged release of funds that matches your build schedule.

Instead of one lump sum, you receive money as your project progresses – keeping interest costs down and ensuring proper cost control.

Here’s how it works in practice:

A developer in Manchester recently converted an old warehouse into apartments using development finance. The first payment covered the purchase and initial works.

More funds were released as each floor was completed, with final payment after building control approval. This approach saved thousands in interest compared to borrowing the full amount upfront.

Lenders look at your project’s gross development value (GDV) when deciding how much to lend, along with factors like location and your track record.

Most will fund up to 75% of total costs, covering both land purchase and construction. They’ll want to see a strong professional team, from contractors to project managers, and previous success with smaller developments.

Your exit strategy – whether selling the completed units or refinancing onto a commercial mortgage – shapes both loan terms and monitoring requirements. Some lenders now offer hybrid products for smaller projects, like house-to-flat conversions, combining elements of both development and bridging loans.

Read more: Development Finance Staged Payments: How Do They Work?

Bridging Loans

Bridging loans offer rapid access to funds when speed matters most.

Unlike development finance, you receive all the money upfront as a single sum, making them perfect for time-sensitive property purchases.

Take auction purchases, where you must complete within 28 days, or properties needing quick refurbishment before qualifying for a standard mortgage.

A London investor recently used a bridge loan to secure a mixed-use building before other buyers could step in, completing the purchase in just two weeks while arranging longer-term finance.

Two main types exist: regulated loans for your own home, with added consumer protections, and unregulated loans for investment properties, offering more flexibility.

Most lenders secure against the property being purchased, though some accept additional security to improve terms or increase borrowing amounts. These are known as cross charge bridging loans, and some will allow you to fund 100% of the purchase price.

Smart investors use bridging loans to move quickly on opportunities, often securing better prices than buyers using conventional mortgages. You can either pay monthly interest or roll it up into the final payment – helpful when the property isn’t generating income during renovations.

Read more: Understanding Bridging Loan Criteria & Eligibility

Let’s talk bridging loans!

Book your free consultation today and let’s discuss how we can help you achieve your property goals.

Which Suits Your Project Better?

The choice between these options often comes down to project scope and timeline.

Development finance supports extensive building works over longer periods, while bridging loans excel at quick purchases and shorter-term funding needs.

Development finance works best for:

  • Building new properties from the ground up
  • Major structural alterations
  • Complete building conversions
  • Projects lasting 12 months or more

Bridging loans suit:

  • Fast-track property purchases
  • Light to moderate renovations
  • Chain-break situations
  • Projects needing funds for 3-12 months

The scale of refurbishment often determines which funding type suits best.

Light refurbishments – like new kitchens, bathrooms, or decorating – usually work well with bridging finance. More extensive work involving structural changes or new buildings points toward development finance, although heavy refurbishment bridging loans are available.

Consider too your own experience level.

First-time developers might find bridging loans more accessible for smaller projects, building a track record before taking on larger development loans. Experienced developers often combine both types, using bridges for quick purchases before switching to development finance for the build phase.

Understanding Loan Terms

Development finance and bridging loans offer different lending periods to match various project needs. Let’s look at how their terms differ.

Development finance provides longer borrowing periods, running from 12 to 36 months. This longer term suits substantial projects where you need time to complete construction work and establish your exit strategy.

The term length gives you breathing room to handle unexpected delays or changes in market conditions.

Some development lenders offer terms beyond 36 months for larger projects, though this often comes with stricter lending criteria. Your experience level and project scope play key roles in determining your maximum term length.

Bridging loans work on much shorter timeframes, designed to provide quick funding for brief periods. Standard terms run from 3 to 18 months, with some lenders extending to 24 months.

These shorter terms match the loan’s purpose – providing fast, flexible funding for specific situations like property purchases or light renovations.

Loan Extensions

In theory, both types of loan can be extended, but there’s no guarantee that this will be available (or approved).

For development finance the most common way of extending the facility is to refinance via a development exit loan. This will be with a new lender, often on better terms now the project is nearly complete.

Bridging loans can be extended for a few months but it’s often more economical to refinance using a rebridge. Essentially a type of ‘remortgage’ for bridging loans, where you take a new loan with a new lender.

Interest Rates Explained

Both loans operate on a monthly interest basis, where interest is charged monthly. Although you won’t always need to make monthly payments.

Development finance, being the slightly riskier option, carries a higher interest rate. For larger projects it should also be possible to secure fixed rate development finance, to give more certainty for finances costs.

Conversely, bridging loan rates tend to be always variable.

Interest Payment Options

Both types of loans offer different ways to handle interest payments.

You can often choose between:

  • Rolled-up interest, where charges add to your loan balance and you pay everything at the end
  • Monthly interest payments, which can reduce your overall costs but require regular outlay
  • Retained interest, where the lender deducts the expected interest at the start

Your options here will depend on your lender and loan to value.

Getting Approved: What Lenders Look For

Securing either type of funding requires careful preparation.

Development finance applications need comprehensive project planning, including detailed costings, architectural drawings, and planning permission confirmation. Bridging loans focus more on the exit strategy – your clear plan for repayment.

Strong applications include:

  • Full project cost breakdowns
  • Planning permissions and building regulations approval
  • Previous development experience details
  • Clear exit strategy
  • Property valuation reports

The application process varies between lenders, but expect more detailed scrutiny for development finance given the larger sums and longer terms involved.

Expert Support: The Broker Advantage

Professional brokers bring invaluable expertise to property finance. Their market knowledge helps secure better terms while avoiding common pitfalls that can delay funding.

A skilled broker assesses your entire project scope, understanding both immediate needs and longer-term implications. They maintain relationships with multiple lenders, knowing exactly which ones align with specific project types and circumstances.

Recent changes in lending criteria and property market conditions make professional guidance even more valuable. Brokers stay current with these shifts, helping structure applications that meet current requirements while securing competitive terms.

Moving Forward

Understanding these distinct funding options helps inform better property investment decisions. Each serves specific purposes and comes with its own advantages for different project types.

Ready to explore your funding options?

Speaking with a specialist broker provides clarity on which route best matches your project goals. They’ll help evaluate your specific circumstances and find the most appropriate funding solution.

The right finance choice supports project success from start to finish. Contact one of our experienced brokers to discuss your plans and ensure your next property project has the optimal funding structure it needs.

FAQ

Bridging loans can be arranged more quickly than development loans.

Bridging loans can complete in as little as 5-7 working days, though 2-3 weeks is more common. Speed depends on having all documentation ready and choosing a lender known for quick completions.

Most lenders require at least outline planning permission before offering development finance. Some will consider applications at pre-planning stage, but terms won’t be as favourable.

Yes, bridging loans work well for land purchases, especially if you plan to refinance onto development finance once planning permission is secured.

While some lenders work with first-time developers, most prefer to see at least one or two successful smaller projects. Experience requirements increase with project size.

Related reading: Can a First Time Buyer Get a Bridging Loan?

Most bridging lenders offer up to 75% LTV, though some go to 80% for strong applications. Higher LTVs usually mean higher interest rates.

Yes, both finance types work for commercial property. Terms might differ from residential projects, and some lenders specialise in commercial developments.

Yes, this is fairly common. Some developers use bridging loans to secure properties quickly, then refinance onto development finance for the build phase.

Still have more questions?

Just give us a call on 020 3488 5706 to speak with an expert.
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