Glossary
Bridging and development finance,
in plain English.
94 terms you will meet when comparing bridging loans and development finance, each with a short definition and a link to where we explain it in more depth.
0-9
- 90-day and 180-day valuation
- A valuer's opinion of the price a property would achieve if it had to be sold within a restricted period, such as 90 or 180 days, rather than with normal marketing. Some lenders use these lower figures for loans that depend on a sale. See how lenders value property.
A
- Agreement for lease
- A contract to grant a lease once a building is completed or works are done. On commercial schemes it is the usual form of a pre-let.
- Arrangement fee
- The lender's fee for setting up a loan, usually a percentage of the gross loan. It is often added to the loan or deducted from the advance. See bridging loan fees.
- Auction finance
- A bridging loan used to complete an auction purchase within the deadline in the auction contract, often 28 days. See auction finance.
- Automated valuation model (AVM)
- A computer-generated valuation based on sales data, used by some lenders in place of a physical inspection on straightforward residential property. It can shorten the time to completion.
B
- Biodiversity net gain (BNG)
- A planning requirement in England that most new development leaves habitat for wildlife in a measurably better state than before, by at least 10%. Meeting it can add cost or affect site layout, so it belongs in the appraisal. See the government's BNG guidance.
- Bridge to let
- A bridging loan arranged with a planned refinance onto a buy-to-let mortgage, sometimes with the same lender. See bridge to let finance.
- Bridging loan
- Short-term finance secured on property, usually for 3 to 24 months, repaid in one sum from a sale or refinance. See bridging loans and how bridging loans work.
- Build to rent
- Homes designed and built to be let and held long term rather than sold. The development loan is usually repaid by a refinance or a sale of the whole building. See build to rent development finance.
- Building control
- The checks that building work meets the Building Regulations, carried out by the council or an approved inspector. A completion certificate is normally needed before units can be sold or refinanced.
C
- Capital stack
- The layers of money funding a scheme, from senior debt at the bottom through stretch senior and mezzanine to equity at the top. Lower layers are repaid first and cost less. See mezzanine and equity explained.
- Chain break
- When a link in a chain of property sales fails. A bridging loan can let a buyer complete their purchase before their own sale goes through. See chain break bridging.
- Closed bridging loan
- A bridge where the exit is already fixed, such as exchanged contracts on a sale with a completion date. Lenders see it as lower risk than an open bridge. See what is a chain break.
- Community Infrastructure Levy (CIL)
- A charge that many councils in England and Wales set on new floor space to help pay for local infrastructure. It is usually payable when development starts, so it needs to be in the budget. See the government's CIL guidance.
- Contingency
- An allowance in the build budget for unexpected costs. Development lenders expect a sensible contingency and are wary of schemes with none. See how to write a development appraisal.
- Credit committee
- The people at a lender who make the final decision on a loan, after the valuation and other reports are in. Terms can change at this stage if the reports differ from what was expected.
- Cross-collateralisation
- Using more than one property as security for a loan. Adding a second property can increase the amount a lender will advance or reduce the cash you need.
D
- Day one advance
- The money a lender releases at completion, before any works funding. On refurbishment and development loans it usually goes towards the purchase of the property or site. See how drawdowns work.
- Debenture
- A charge over a company's assets, in addition to the charge on the property. Lenders often take one when lending to a special purpose vehicle.
- Decision in principle (DIP)
- A lender's initial indication that it would consider a loan on stated terms, subject to valuation, legal work and its own checks. It is not a formal offer. Our Instant Quotes give indicative figures before a DIP is requested.
- Default interest
- A higher rate charged if a loan is not repaid on time or its terms are broken. It can increase the cost of a late exit sharply. See what if I cannot repay a bridging loan.
- Desktop valuation
- A valuation carried out from data and records without a full inspection. Some lenders accept one on lower-risk cases to save time. See fast bridging loans.
- Development appraisal
- A costed plan of a scheme showing the GDV, land, build, fees, finance costs and profit. It is the core of any development finance application. See how to write a development appraisal.
- Development exit loan
- A bridge that repays the development lender once the build is finished, usually at a lower rate, giving time to sell or let the units. See development exit finance.
- Development finance
- Funding for land and construction, with the build money released in stages as work is completed and checked. See development finance.
- Drawdown
- A release of funds from a facility. On development loans, each drawdown follows a monitoring surveyor visit, and interest is charged only on funds drawn. See how drawdowns work.
- Dual legal representation
- Where one firm of solicitors acts for both the borrower and the lender. Some lenders allow it on simpler cases, which can reduce cost and time.
E
- Equity
- The money the borrower or partners put into a deal, as opposed to borrowed funds. Lenders usually want some equity in every scheme. See deposits for development finance.
- Exit fee
- A fee charged when a loan is repaid, usually a percentage of the loan or of the GDV. Not every lender charges one. See bridging loan fees.
- Exit strategy
- How a short-term loan will be repaid, usually by a sale or a refinance. Lenders weigh it as closely as the property itself. See bridging exit strategies.
- Extension
- Agreeing more time on a bridge with the existing lender, usually for a fee and sometimes at a higher rate. See can you extend a bridging loan.
F
- Facility letter
- The formal loan offer setting out the amount, rate, fees, conditions and security. It replaces any indicative terms once issued.
- Finish and exit
- A loan that refinances a part-built scheme and funds the remaining works, then gives time to sell. See finish and exit finance.
- First charge
- The first legal charge registered on a property. The first charge lender is repaid before anyone else when the property is sold.
- Fix and flip
- Buying a property, refurbishing it and selling it for a profit, usually funded with light refurbishment bridging. See fix and flip loans.
G
- Gross development value (GDV)
- The expected value of a scheme once complete, either as the total of unit sales or as an investment value. See gross development value explained.
- Gross loan
- The full loan including any interest and fees added to it. Loan to value is usually measured on the gross loan. Compare net loan.
- Ground-up development
- Building new property on a cleared or empty site. See ground-up development finance.
H
- Heavy refurbishment
- Works that are structural, need planning or building regulations approval, or change the use of a building. See heavy refurbishment finance and light vs heavy refurbishment.
- House in multiple occupation (HMO)
- A property let to several people who are not one household and share facilities. Larger HMOs need a licence from the council. See HMO bridging.
I
- Indicative terms
- Figures that show what a lender may offer, before valuation and full checks. They are not an offer and can change.
J
- Joint venture (JV)
- Two or more parties working together on a scheme, such as a land owner and a developer, often through a shared company. See joint venture development finance.
L
- Land finance
- A bridge to buy land, with or without planning permission, before development finance is in place. See land finance.
- Light refurbishment
- Cosmetic and non-structural works such as kitchens, bathrooms and decoration. See light refurbishment finance.
- Limited company bridging
- A bridge taken by a company rather than an individual, usually with personal guarantees from the directors. See limited company bridging.
- Liquidated damages (LADs)
- A fixed sum a contractor agrees to pay for each week a build runs late, set out in the building contract. Lenders look for them as protection against delay. See what development lenders look for.
- Loan to cost (LTC)
- The loan as a percentage of the total cost of land and construction. Senior development lenders usually go up to about 90%. See LTV and LTGDV explained.
- Loan to gross development value (LTGDV)
- The total facility, including rolled-up interest and fees, as a percentage of the GDV. See LTV and LTGDV explained and our development calculator.
- Loan to value (LTV)
- The loan as a percentage of the property's current value. Most first charge bridging lenders go up to 70% to 75%. See how much can I borrow.
M
- Mezzanine finance
- A second loan that sits behind the senior lender to reduce the equity needed, at a higher cost. See mezzanine development finance.
- Modern methods of construction (MMC)
- Building methods such as modular or panelised systems made largely off site. See modular development finance.
- Monitoring surveyor
- A surveyor appointed by the lender to check the scheme before the loan and to confirm progress and costs before each drawdown. Also called a project monitoring surveyor (PMS). See what is a monitoring surveyor.
N
- Net loan
- The money actually received after retained interest and deducted fees. It is lower than the gross loan. See bridging loan costs explained.
- Nutrient neutrality
- A requirement in some river catchments in England that new homes do not add to nutrient pollution of protected habitats. Developers may need to buy or provide mitigation before planning is granted, which affects timing and cost.
O
- Open bridging loan
- A bridge with no fixed repayment date set by an agreed sale or refinance, just a planned exit within the term. Lenders look closely at how realistic that exit is. Compare closed bridge.
- Open market value (OMV)
- The price a property should achieve with normal marketing between a willing buyer and seller. Some lenders lend on OMV rather than the purchase price. See below market value bridging.
- Option to tax
- An election by the owner of commercial property to charge VAT on its sale or rent. It is the most common reason VAT appears on a purchase. See VAT bridging loans.
P
- Peak debt
- The highest amount owed during a development, usually just before the first sales, when all costs have been drawn and interest has built up. Some facilities are sized on peak debt rather than the full GDV. See how drawdowns work.
- Permitted development
- Rights that allow certain changes of use or works without a full planning application, often through prior approval. See permitted development finance and permitted development explained.
- Personal guarantee (PG)
- A promise by a director or shareholder to repay a company's loan personally if the company cannot. See personal guarantees explained.
- Planning gain
- The increase in a site's value when planning permission is granted. Some lenders count it towards your contribution. See planning gain bridging and planning gain and land value.
- Practical completion (PC)
- The point when the build is finished apart from minor defects and the property can be used. It often triggers the end of the build phase and the start of sales or a refinance.
- Pre-let
- A tenant committed to lease a building before it is built or finished. Many commercial development lenders require one. See pre-let commercial development finance.
- Prior approval
- A simplified council check on specific matters for permitted development, such as transport, flooding and natural light, in place of full planning. See permitted development explained.
Q
- Quantity surveyor (QS)
- A professional who prices building work and checks costs. A QS report often supports the build budget in a development application, and the monitoring surveyor may be a QS.
R
- Re-bridge
- Refinancing one bridging loan with another, usually when the original term is ending before the exit is ready. See re-bridging loans.
- Red Book valuation
- A valuation carried out under the RICS Valuation Global Standards by a registered valuer. Most lenders require one. See RICS.
- Refurbishment finance
- A bridge that funds the purchase of a property and, often, the cost of works to improve it. See refurbishment finance.
- Regulated bridging loan
- A bridge secured on a home that the borrower or a close family member lives in, or will live in, where the borrower is an individual or trustees. It is regulated by the FCA and carries extra protections. See regulated bridging loans.
- Residual land value
- The most a developer can pay for a site: the GDV less all build costs, fees, finance and target profit. Try our residual land value calculator.
- Retained interest
- Interest for an agreed period deducted from the loan at the start, so there are no monthly payments. It reduces the net loan. See bridging loan interest rates.
- Return on capital employed (ROCE)
- Profit as a percentage of the cash you put in. Higher leverage can raise ROCE even when total profit falls. Try our ROCE calculator.
- Rolled-up interest
- Interest added to the loan each month and repaid at the end, often compounding. It is common on development finance. See bridging loan interest rates.
S
- S-curve
- The typical shape of spending on a build: slow at first, faster in the middle and slow at the end. Lenders use it to forecast drawdowns and interest.
- Second charge
- A charge registered behind an existing first charge. The second charge lender is repaid after the first. See second charge bridging.
- Section 106 agreement (s106)
- A legal agreement with the council, attached to a planning permission, covering obligations such as affordable housing or contributions to local services. See the government's planning obligations guidance.
- Self-build
- Building a home for yourself to live in. Finance for it is usually regulated. See self-build finance.
- Senior debt
- The main loan with the first charge, repaid before any other lender or investor. See development finance.
- Serviced interest
- Interest paid monthly during the term rather than retained or rolled up. It can increase the net advance but needs income to pay it.
- Special purpose vehicle (SPV)
- A limited company set up only to own a property or carry out one scheme. See limited company and SPV bridging.
- Stage payment
- A release of funds at a defined point in a build, common on self-build and development loans. Most are paid in arrears, after the work is checked.
- Stamp duty land tax (SDLT)
- The tax on property purchases in England and Northern Ireland. Scotland and Wales have their own taxes. See stamp duty and bridging loans.
- Stretch senior
- A single senior loan at higher leverage than standard, to reduce the need for mezzanine. See stretch senior development finance.
- Structural warranty
- Insurance covering defects in a new or converted home, usually for ten years. Buyers' mortgage lenders normally require one, or a professional consultant's certificate.
T
- Term
- The length of a loan. Bridging terms are usually 3 to 24 months; development terms are set to cover the build and the exit. See how long a bridging loan takes.
- Title insurance
- Insurance that covers certain defects in a property's legal title. Some lenders accept it in place of full searches to save time.
- Tranche
- A portion of a facility released at a set point, such as a stage of the build. See how drawdowns work.
- Transfer of a going concern (TOGC)
- The sale of a business, such as a let property investment, as a going concern. If the conditions are met, no VAT is charged on the price. See VAT bridging loans.
- True monthly cost (TMC)
- The total interest and fees on a loan spread over its term, so quotes with different rates and fees can be compared. Try our development calculator.
U
- Unmortgageable property
- A property a mainstream mortgage lender will not accept, for example because it has no working kitchen or bathroom. See bridging for unmortgageable property.
- Unregulated bridging loan
- A bridge for business or investment purposes, not secured on a home the borrower or family lives in. See regulated and unregulated bridging.
- Use class
- The planning category a building falls into, such as residential or commercial, business and service. A change between classes can need planning permission. See the Planning Portal.
V
- VAT bridging loan
- A short loan that pays the VAT on a commercial purchase until HMRC refunds it. See VAT bridging loans and our VAT bridging calculator.
W
- Works schedule
- A costed list of the works planned on a property, used by lenders and valuers to judge the budget and the value after the works.
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