Development & Bridging Finance – Overview Guide
Quick Summary
Bridging finance: short-term (3-24 m), interest-only loans secured on property, used to cover purchase or cashflow gaps until a sale or refinance.
Development finance: staged facility that funds land + build costs, released at each milestone; repaid via sale or long-term mortgage.
Typical costs: 0.55-1.25 % per month bridging; 6-9 % p.a. rolled-up on development loans, plus 1-2 % arrangement fee and exit/legal costs.
Ideal for: auction purchases, chain breaks, heavy refurbs, ground-up builds and conversions where mainstream lenders can’t move fast enough.
1 | Bridging vs Development at a Glance
| Feature | Bridging Loan | Development Loan |
|---|---|---|
| Purpose | Short-term cash gap (purchase, tax bill, auction, chain break) | Fund land purchase + construction costs |
| Term | 3–24 months | 6–30 months |
| LTV/LTC | Up to 75 % OMV or 100 % with extra security | Up to 65 % GDV, 80 % of build costs |
| Interest | 0.55–1.25 % per month, rolled or serviced | 6–9 % p.a. rolled up |
| Release | Lump sum day one | Day one land draw + stage draws on QS sign-off |
| Exit | Sale, refinance or inheritance funds | Sale of units or refinance to term BTL |
2 | When to Use a Bridge
Auction purchases – 28-day completion deadline.
Buying before selling – secure new home, repay once old one sells.
Uninhabitable properties – no kitchen/bathroom so mainstream lenders refuse.
Lease extensions / legal issues – bridge pays premium, refinance post-extension.
3 | Development Finance Structure
| Phase | Advance | Monitoring |
|---|---|---|
| Land | % of land price on completion | Valuer & QS initial report |
| Stage draws | Foundations, shell, watertight, second fix, practical completion | QS certifies costs then lender releases funds |
| Contingency | 5-10 % of build costs retained | Accessed with lender approval |
Borrower typically contributes first 10–20 % of costs (“skin in the game”).
4 | Key Costs
| Fee | Range |
|---|---|
| Arrangement | 1–2 % of facility |
| Monthly/annual interest | Bridging 0.55–1.25 % pm ; Dev 6–9 % p.a. |
| Exit fee | 0–2 % (often % of GDV on dev) |
| Valuation + QS | £1k–£5k+ depending on project |
| Legal (dual rep) | £1.5k–£4k |
Interest can be retained, rolled-up or serviced; choose based on cashflow.
5 | Popular Lenders & Typical Sweet Spots
| Lender | Product niche |
|---|---|
| Glenhawk / MT Finance | Fast residential & light-refurb bridges up to 75 % |
| Together / Precise | Regulated bridging for owner-occupiers, credit blips ok |
| Shawbrook | Heavy refurb up to 70 % GDV, option to exit onto BTL term loan |
| Paragon Development | Multi-unit up to £35 m, 65 % GDV, 90 % build |
| Octopus Real Estate | Ground-up residential, PBSA, care homes |
6 | Exit Strategy Checklist ✅
Confirm end value / GDV via RICS Red Book or agent letter.
Line up decision-in-principle for term mortgage if refinancing.
Build sales timeline with conservative 3-6 m buffer.
Factor agent & SDLT costs in profit margin (target 20 %+ on GDV).
7 | Application Timeline
Heads-of-Terms – 24 h.
Valuation & QS instruction – 3-7 d.
Credit & AML underwriting – parallel.
Offer issued – 2-3 wks.
Completion – 3-6 wks (bridging as fast as 5-7 d if urgent).
8 | Next Steps
Gather project appraisal, cost plan & CV of experience.
Speak to specialist broker to match lender appetite & leverage.
Secure exit AIP (BTL, resi or sales schedule).
Build in contingency & realistic timeline before exchanging on land/purchase.
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