Compare bridging loans for property development

Finance to help you start or finish a property development

A property development loan can help if you need access to finance at short notice for your construction project.

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Last updated
November 21, 2023

What is a bridging loan for property development?

Bridging finance for property development is a relatively quick way to get hold of cash to finance a development project.

But while it's less complicated than securing a traditional mortgage or remortgage, it's also shorter term and more expensive per month.

Bridging loans typically start from around £25,000 and there's no official upper limit to what you can borrow, as long as you have assets to secure the loan against.

But the terms are generally not much longer than two years.

Percentage of bridging loans used for property investment[1]
19%

What can you use them for?

Bridging loans can be used for a range of purposes.

For example, you might get a loan if:

  • You're looking to buy a property at auction

  • You see an investment opportunity and want to move quickly

  • You have some land to build on but not the cash to start a development

  • You need cash to complete a development

Loans can be used for residential properties as well as commercial and mixed use properties.

Property development loans tend to come with expensive fees on top of interest. So, check exactly what the costs are before you proceed.”

How to get the right bridging loan for property development

Property development bridging loans can get you the funds you need to finance your construction projects. Here's what you need to know:

How much you’re allowed to borrow

Lenders typically offer loans from £5,000 all the way up to £50 million or potentially more for the right development.

The loan-to-value percentage

You’re usually only able to borrow up to a maximum loan-to-value ratio of 80% of the total value of your property.

How long you need to pay it back

Development loans can last from just a few days to two years or more. Some loans will have minimum terms, while others let you repay straight away. The longer you borrow for, the more it will cost in interest.

What does property development finance cost?

Usually, a bridging loan will be priced monthly rather than annually because most people take them out for short periods of time.

Generally, the loans are quite expensive, with monthly interest rates of between 0.4% and 2%.

On top of that, you’ll have to pay an arrangement fee when you take out the loan, which is usually charged at around 1-4%. 2% is is the most common fee in our comparison.

The equivalent annual percentage of a property development bridging loan is between 6-30%, much higher than you would usually pay for a residential mortgage.

Make sure you look at all the fees as well as the charges before taking out a loan.

Typical costs to consider include:

  • Arrangement fees - This is the cost of setting up your loan and is normally a percentage of the amount you borrow, but can also be a fixed cash fee. Most lenders charge between 1-2%, but some are even higher.

  • Broker fees - If you use a broker to find your bridging loan, you normally have to pay a fee. This could be hundreds or sometimes thousands of pounds but could be worthwhile if they can find you a cheaper provider.

  • Exit fees - This is the cost of paying back your loan early. Not all lenders charge exit fees, but those that do typically cost around 1% of your loan amount.

There may be other fees to pay, so always check the total cost before you proceed.

FAQs

Can I get a development loan if I am waiting to sell another property?

Yes, this is a common reason for a bridging loan. If you are waiting to sell a property but another is available, you could get a loan to avoid missing out.

Can I get a loan if I buy a property at auction?

Yes, if you have won an auction bid and need funds to complete the purchase, you could use a bridging loan.

How much could I borrow with a development loan?

This depends on how much your security is worth; most bridging lenders let you borrow up to 65-85% of your property value, but some may offer more.

Can I get a development loan for an uninhabitable property?

Some lenders may give you a loan, even if the property is currently uninhabitable. But only if you plan to redevelop it.

Can I use a bridging loan for property development to build my own home?

Yes, you may be accepted if you apply, but a self-build mortgage is likely to be a better choice.

Can I get a bridging loan in Scotland?

Yes, but some lenders don't cover Scotland, so you will need to check this before you apply for the loan.

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About the author

James Andrews
James has spent the past 15 years writing and editing personal finance news, specialising in consumer rights, pensions, insurance, property and investments

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