How each is structured
A bridging loan is usually advanced in one sum on completion, measured as a percentage of the property's value today, commonly up to 70% to 75%. Interest is retained, rolled up or serviced, and the loan is repaid from a sale or refinance.
Development finance is a facility drawn in stages. The lender advances part of the land cost on day one, then releases build funding as work is completed and checked by a monitoring surveyor. The facility is sized against the gross development value and the total cost, which our guide to LTV and LTGDV explains.
Which projects fit which
- Buying and reselling or refinancing with little or no work: bridging
- Cosmetic refurbishment such as kitchens, bathrooms and decoration: bridging, often with works funded from your own cash
- Structural refurbishment, extensions or reconfiguration: heavy refurbishment bridging or development finance, depending on scale
- Office or retail to residential conversions: bridging with works funding for smaller schemes, development finance for larger ones
- New-build houses or flats: ground-up development finance
- Completed or nearly completed schemes awaiting sale: development exit finance
Our guide to light and heavy refurbishment sets out where lenders usually draw the line.
The overlap: refurbishment bridging
Between a plain bridge and a ground-up facility sits refurbishment bridging. Lenders advance against the current value on day one and release works funding in arrears, sometimes sizing the total facility against the value after works. For conversions and heavy refurbishments, this can be quicker and lighter on paperwork than a full development facility.
As the works grow in cost relative to the property's value, and as planning, building control and contractors become more involved, lenders tend to treat the case as development. A useful rule of thumb is that if the works cost more than the property is worth today, a development lender is likely to be the better fit.
What each lender will ask for
Bridging lenders focus on the security, the exit and, for works, a costed schedule and your experience. Development lenders go further: detailed planning, a full appraisal, the build contract, the professional team, warranties and a programme. See what development lenders look for.
Costs differ too. Development facilities usually involve a monitoring surveyor and often an exit fee, and interest is charged only on funds drawn. Bridging is simpler, but interest on a retained-interest bridge is charged on the full gross loan from day one.
Using both on one project
Many projects use more than one product in sequence. A common pattern is to buy a site with a land bridge while planning is obtained, refinance onto development finance when the build starts, then move onto a development exit loan at practical completion while units sell. Each step should be planned so the next lender's requirements are met before the current loan ends.
To compare lenders for either route, start with Instant Quotes, choosing bridging or development to match your project.
Signs your project needs development finance
- You are building new homes or commercial space from the ground up
- The works cost more than the property is worth today
- The project creates several new units, rather than improving one
- A main contractor will run the build under a formal building contract
- Planning permission, Section 106 obligations or new-build warranties are involved
If several of these apply, development lenders are likely to be a better fit than bridging lenders, even if the first stage is a land purchase. If none apply, and the property can be bought, improved and sold or refinanced within a year or so, bridging is usually simpler and quicker.
Where the answer is unclear, lenders on both sides will look at the scale of the works, your experience and the exit. Setting out the scheme clearly, with costs, a programme and evidence of the end value, lets the right type of lender give firm terms.
Common questions
Can I use a bridging loan to build a house?
Generally not for a ground-up build. Bridging suits purchases and refurbishment; new builds are normally funded with development finance released in stages.
Is development finance cheaper than bridging?
Rates can be similar, but development interest is usually charged only on funds drawn, while development facilities often add monitoring and exit fees. The total depends on the scheme.
What is refurbishment bridging?
A bridge that also releases funding for works, sometimes sized against the value after the works. It sits between a standard bridge and full development finance.
This guide is for general information only and should not be treated as legal, tax or financial advice. Lender requirements depend on the property and your circumstances.
