-- This dynamic can make it difficult for new or small-scale developers to secure the funding they need to take on even the most modest property development projects. This is precisely where a comparatively flexible and accessible alternative can offer an important lifeline: bridging finance.
Accessing development finance in the UK can often be challenging, especially if you are not an established developer with a proven track record. Most mainstream lenders tend to be quite restrictive in their lending practices, offering their services exclusively to developers with suitably impressive portfolios.
But even if you are able to qualify for specialist development finance there are instances where a bridging loan may be a more suitable or preferable option. Released in full as a single lump sum payment, bridging finance can provide greater flexibility than development finance, which is almost always issued in a series of instalments.
What is a Property Development Bridging Loan?
A property development bridging loan is a specialist short-term finance solution, used to cover the costs of all types of property development and construction projects.
As the name suggests, the funds are issued to ‘bridge’ the funding gap between the purchase of a property and its subsequent sale, or transition to longer-term financing. Secured against assets of value (typically residential or commercial property), there are no limitations to how much can be issued in the form of a bridging loan, making it suitable for all types of property developments.
How Does a Property Development Bridge Loan Work?
Application and underwriting processes vary from one lender to the next, but the vast majority of development finance loans work as follows:
- The developer applies for the loan, typically through a specialist lender or an independent broker.
- The lender assesses the proposed development project, exit strategy and the developer's ability to repay the loan.
- An offer is made, typically up to a maximum LTV of 85% of the value of the security provided.
- If accepted, the loan is quickly released in a lump-sum format.
- The developer uses the funds for the development project.
- The developer repays the loan either by selling the developed property or refinancing to a long-term mortgage.
- As interest applies monthly with bridging loans, the most cost-effective products are those repaid as promptly as possible.
How is Bridging Useful for Property Developers?
- Bridging loans have the potential to provide a number of unique benefits over traditional development finance, which include:
- Accessibility: Many lenders offer bridging loans. They are also easier to qualify for than traditional loans.
- Fast Funding: Funds from bridging loans are often issued quickly, making them ideal for time-sensitive projects.
- Flexibility: Developers can use bridging loans for any legal purpose, including purchasing land, renovating property or acting efficiently on a lucrative opportunity.
What Are the Typical Borrowing Costs of a Development Bridging Loan?
Overall borrowing costs can vary significantly with development bridging loans, in accordance with factors like the loan size, length of the loan and the risk profile of the project.
- However, the following costs should be factored into your calculations, before applying:
- Interest Rates: Typically between 0.44% and 1.5% per month.
- Arrangement Fees: 1-2% of the total loan amount, sometimes as low as 0%
- Exit Fees: Not always applicable, but could be up to 1% of the loan.
- Legal and Valuation Fees: Variable, depending upon the loan size and property type.
How Much Can I Borrow with Bridging Finance?
The loan amount you can borrow with bridging loans is tied to the value of the assets you use as security for the loan and the strength of your exit strategy. Typical exit strategies include selling the development project or refinancing to a longer-term financial product (such as a buy-to-let mortgage).
Lenders will typically offer a maximum loan-to-value (LTV) ratio of 70-75%, but this can increase significantly with the provision of additional security.
What Type of Property Development Projects Can a Bridge Loan Be Used For?
Bridging loans bring the benefit of limitless practical applications, with almost no restrictions being placed on their usage by lenders. Some typical applications for property development bridging loans include the following:
- Residential renovations or extensions.
- Conversion of properties into apartments or HMO (House in Multiple Occupation).
- Ground-up construction projects.
- Refurbishment and selling of dilapidated properties.
How Can I Get a Bridge Loan for Property Development?
The best way to get a property development bridging loan is to apply via an independent broker.
Consulting with an independent specialist grants access to objective and impartial advice, coupled with the knowledge and insights needed to find the perfect lender to suit your requirements.
Contact Info:
Name: Gary Latham
Email: Send Email
Organization: UK Property Finance
Address: Office Block 2, Nursery Court, Leicester, LE8 0EX
Phone: 0116 464 5544
Website: https://ukpropertyfinance.co.uk
Video URL: https://www.youtube.com/embed/x1NslxmO_qw
Release ID: 89103077
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