Bridging Loans For Property Developers

Specialist bridging loans for property developers

Bridging finance allows property developers to raise funds quickly for a variety of reasons – read on to find out what they are and get the best deal with ABC Finance

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ABC FinanceBridging loansProperty developers
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeRGI CSP

20+ years experience in bridging loans

If you’re a property developer looking for a bridging loan, ABC Finance can help.

We offer bridging finance from the whole market to make sure we offer you the best deal.

Property developer loans explained

What are bridging loans for property developers?

Bridging loans for property developers, also known as bridging finance, is a short-term loan secured against property such as a building, land or a development site.

It differs from development finance due to the nature of the use of funds. Development loans are directed more towards large scale projects or ground-up builds, whereas developers use bridging finance to cover simpler projects such as a light refurbishment or a small conversion project.

How can a bridging loan benefit a property developer such as myself?

Bridging loans are a great way of raising finance for property developers. In most cases, property developers look to raise finance on unmortgageable property or land, and a standard mortgage won’t suffice.

What are bridging loans for property developers used for?

Property developer finance is a bridging loan used by property developers to allow them to borrow to fund a project rather than use their own money or equity.

The typical property developer bridging loans we see at ABC Finance are:

Key product features

Key Features

Max LTV

Up to 85%

Interest rate

From 0.45% per month

Charge types

1st, 2nd & 3rd considered

Term

1-36 months (maximum 12 months for regulated loans)

Interest type

Added to the loan, deducted or serviced

Completion timescale

3 days – 4 weeks

Criteria

Residential, commercial property or land acceptable

Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds

Minimum applicant age 18 years – no maximum age

Available in England, Scotland, Wales and Northern Ireland

Adverse credit accepted (on a case by case basis)

Property developer bridging lending criteria

Will I qualify for bridging finance?

As a property developer, to be eligible for a bridging loan, lenders will look at the following lending criteria:

  • The reason for the loan.
  • Your cash deposit or equity position.
  • The land value and planning permission status.
  • Your credit history.
  • Your repayment strategy, or exit strategy.
  • Your experience as a developer (first time developers accepted).

If a lender is happy with the above, it is likely that you qualify for bridging finance. We’re able to offer finance for most borrowers, as long as there is sufficient deposit or equity to meet the lenders criteria.

What loan term can you offer?

Lenders offer loan terms from 1 month up to 36 months, in most cases 24 months is the maximum term available.

The term is often determined by your loan repayment plan, often called the exit route, or exit strategy.

If you are planning to sell the property, or site to repay the loan, the loan term needs to be long enough for a sale to be realistic, this should really be a minimum of 9 months unless you have a sale agreed already.

If you are to refinance the loan to exit, the term can be shorter and will depend on how long the refinance will take.

What checks will the lender carry out during the application process?

The lender will look at the rationale for the loan, your credit history and profile and the security property itself, to ensure its suitable security for the loan.

Will I qualify if I have bad credit?

Yes, lenders do consider finance applications from developers with varying credit profiles.

Your creditworthiness will often impact the interest rate you will pay but ultimately the lender will be assessing the security for the loan.

It can be common for property developers to have some form of adverse credit due to disputes over goods or trades.

We offer a specialist range of bad credit bridging finance.

Who can take out bridging finance?

We’re able to offer bridging finance to property developer applicants under the following borrowing entities:

  • Individuals.
  • Partnerships or LLP’s
  • Limited Companies, including Offshore.
  • Pension Funds.

How much can I borrow?

Minimum and maximum loan sizes

Bridging loans for property developers range from £10,000 with no maximum loan size.

The maximum loan offered is generally determined by your repayment plan to ensure you are able to repay the loan by the end of the term, without a shortfall.

We offer a bespoke range of large bridging loans for applications over £1,000,000.

Loan to value requirements

75% of the property value can be obtained when securing against a standard property and tends to be the most common loan amount.

We’re able to offer 100% of the purchase price in situations where you are looking to borrow against multiple properties, such as your current home or investment property and a new property.

When purchasing a property for investment, 85% of the purchase price can be obtained if carrying out a light refurbishment or 90% LTV for some auction purchases.

If you are carrying out a development and are borrowing the funds for this, up to 75% loan to gross development value, also called loan to GDV, can be obtained.

A loan against GDV can be obtained, however the lender will also cap the day 1 lend, usually to 75% LTV.

Does income affect my maximum loan?

No, in most cases, income doesn’t usually affect your maximum loan, the lender will be more interested in how you will pay back the loan and whether this is achievable.

If you are raising a mortgage to repay the bridging loan, income could be assessed by the lender to ensure this is realistic.

Exit strategy & the impact on maximum loan

When looking at exit strategy for property developers, this is usually broken down into 2 repayment plans:

Refinance, you may be looking to refinance onto development finance, development exit finance or a standard mortgage once the development project is complete. Again, the bridging loan lender will look at the max loan on exit to determine their maximum loan offered.

Sale of property, the lender will make sure that the property will be sold for enough to clear the loan.

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Bridging loan interest rates & costs

What interest rate will I pay?

Interest rates start at 0.45% per month and go up to 2% per month. In most cases bridging loan rates of 0.45% – 0.9% per month are realistic.

Some lenders charge a ‘stepped’ interest rate i.e. a lower rate for a period and a higher interest rate for a period. This is ideal when you feel that you will only need the loan for a short time.

The interest rate will be determined by looking at the LTV, your credit history, whether the loan is for light refurbishment or heavy refurbishment and whether the loan is a 1st charge or 2nd charge.

When assessing interest rates, some lenders quote an interest rate which is Bank of England base rate tracked. This means that the interest rate may look low, but the current Bank Base Rate (BBR) needs to be added to this to calculate the actual interest rate.

As a whole of market FCA regulated broker, we’ll assess your circumstances and offer you the best bridging loan interest rate available to your situation.

Are there other set up costs to consider?

Yes, the other costs to be considered are:

  • Lender arrangement fee – the fee that the lender charges to set up the loan and are usually between 1-2% of the loan amount. This fee is usually added to the loan. Lower arrangement fees tend to be reserved for larger loans.
  • Loan exit fee – some lenders charge a fee on repayment of the loan, if charged, it’s usually an extra month’s interest or 1% of the gross loan. We always look to use a lender who won’t charge an exit fee, where possible.
  • Valuation fee – some lenders require a valuation of the property. This is to ensure it is suitable security for the loan and that the lender is protected. These fees generally increase as the property value increases.
  • Legal fee – there is a fee to pay for the legal work involved in setting up the loan. You are usually expected to pay the lenders legal costs, as well as your own.
  • Broker fee – some bridging loan brokers charge broker fees for arranging bridging loans. This may be a flat fee or a percentage of the loan amount. Where charged, it is usually payable on completion. We don’t charge broker fees for arranging bridging loans.

Are there any upfront costs to pay?

On some occasions, there are upfront costs payable before loan completion. Valuation and legal fees are payable before completion of the loan. Some lenders offer a free automated valuation and add legal fees to the loan.

If you are carrying out a refurbishment of the property, it’s likely a valuation will be needed. The same applies if you are borrowing against land.

If you require a product with no upfront costs, please let us know at the outset. This may be possible however you may pay a higher interest rate on your borrowing.

Do ABC Finance charge fees for arranging bridging loans for property developers?

No, at ABC Finance, we don’t charge a broker fee for arranging bridging loans of £100,000 or above.

How to get a bridging loan as a property developer

What is the application process?

  • You can speak with lenders yourself, or speak with an experienced bridging broker to run through your finance needs.
  • When a lender, and product is chosen, your loan application form and supporting documents are submitted.
  • The loan underwriter will assess your application and if happy to proceed, will instruct the valuation or run an automated valuation (AVM).
  • When the valuation report is back, if the details are satisfactory the offer will be issued and legals instructed.
  • Both yours, and the lenders solicitor will work towards a completion date.

You can instruct valuations and solicitors before underwriter assessment. This will speed up the process but is at your cost should the underwriter decline your application.

Should I work with a broker or go to a lender direct?

Working alongside an FCA regulated bridging loan broker is definitely advantageous, especially if they don’t charge broker fees. This is effectively a free bridging loan comparison.

A good bridging finance broker will have many years of experience in the property finance market and will know exactly which lenders to deal with. Here at ABC Finance Limited we also assist with your loan application and liaise with the lender, valuer and solicitors for you. We’re also on hand after loan completion to assist with your repayment plan.

You can of course deal with lenders yourself and compare bridging loans. Many lenders do work directly with the public, however speaking with multiple lenders and comparing loan offers, including interest rates and fees can be time consuming.

What documents will I have to provide?

When you apply for a bridging loan, both brokers and lenders will require the following documents:

  • Application form including synopsis and loan repayment plan.
  • Proof of identity (ID), i.e. Passport copy or driving licence.
  • Proof of address, i.e. a recent utility bill or credit card statement.
  • Latest 3 months bank statements.
  • Proof of deposit for purchase applications.

How long does the application process take to complete?

A typical bridging loan application takes from 3 days to 4 weeks.

The completion time from applying for the loan to completion will depend on several factors, such as:

  • Whether a physical valuation or an AVM is needed.
  • The lenders application processing time, including their current workload.
  • Whether both the lenders, and your solicitor has capacity to complete within a deadline.
  • How quickly you are able to send the required forms and documents.

Of course, some lenders can release funds quicker than others, if you have a deadline to adhere to you should make us aware of this from the outset.

We can then choose a lender who can meet the deadline, and assist you in streamlining the process.

How is my application assessed?

Lenders assess loan applications from property developers on whether they feel that the project can be completed and the loan repaid within the pre-agreed timeframe.

Types of bridging loans for developers

Here are the typical bridging loan applications we see from property developers

First charge bridging loans

A first charge bridging loan is secured on a first charge basis and will offer the lowest interest rates.

Second charge bridging loans

Second charge bridging loans sit behind your current lender on a second charge basis. Due to the increased level of risk, interest rates are usually higher when compared to first charge bridging.

Light refurbishment bridging loans

Light refurbishment bridging loans are for projects that usually cover the following:

  • Replacing fixtures such as the kitchen and bathroom.
  • New flooring and decoration.
  • Replacing windows.
  • Landscaping and exterior paintwork.
  • Nothing that requires planning permission.

Heavy refurbishment bridging loans

Heavy refurbishment bridging loans are for projects that usually cover the following:

  • Extensions or changing the exterior footprint.
  • Loft conversions or a new roof.
  • Small conversion projects, i.e. a house to flats conversion.
  • Large conversion projects i.e. a commercial to residential conversion.
  • Projects that require planning permission.

Development exit finance

Development exit finance is a bridging loan designed to step in when a project is complete, or nearing completion. They allow you to refinance to save money, borrow extra funds or buy time to sell the property, allowing you to make a larger profit.

Frequently asked questions

Is bridging finance risky for property developers?

All types of finance carry an element of risk in terms of not being able to pay back the loan.

Both lenders, and experienced brokers, will assess your application to assist in minimising this risk by highlighting any concerns. This includes outside input from valuers, surveyors and solicitors.

Due to these stringent checks, bridging loans tend to be safe for property developers.

What are the alternatives to bridging finance for developers?

If you are carrying out a large scale development, such as a ground-up build, development finance is usually more suitable.

If however the project is smaller and you have equity in other property, you could look to raise a second charge mortgage or remortgage to raise money to cover your build costs.

Can I repay my loan early?

Yes, you can repay your bridging loan early and at any point during the term. There may be a minimum interest amount payable, this is usually the first full months interest.

Some lenders charge longer interest earning periods, i.e. 3 months. If you only need the loan for a very short period you should discuss this upfront.

Do I need to provide proof of income?

Income proof is usually asked for by the lender for this type of loan, however if this isn’t possible you are still eligible.

If you have no proof of income, let your lender or broker know upfront.

What is the minimum deposit?

The minimum deposit needed in most cases is 25% plus fees and interest for the term of the loan.

There are lenders offering light refurbishment bridging with a 15% deposit required. If interest is to be retained, this should also be added to the deposit amount.

The minimum deposit needed for developers buying at auction 10%, plus fees and interest for the term of the loan.

Are these loans hard to get?

No, applying for a bridging loan or refurbishment finance is simple.

The application process can seem overwhelming however our experienced advisors are on hand to help throughout the process right through to completion, and beyond.

How do you pay back the loan?

The bridging loan can be paid back by either sale or refinance of your property.

However other repayment options are available, such as inheritance, cashing in shares or pensions or sale of other assets.

Is there an age limit?

Most lenders hold an age limit of 85 years old for applicants, however as a broker we have lenders available with no maximum age limit.

Can ABC Finance help me find the best deal?

Yes, our experienced bridging finance advisors will look at your needs and preferences and offer you the best deal based on this.

Why work with ABC Finance?

ABC Finance Ltd were founded in the year 2000 and have a wealth of knowledge in the finance market.

We understand bridging finance and have helped many property developers secure funding over the years. 

Our team of bridging loan advisors are always on hand from initial enquiry, right through to completion and beyond.

Is this type of finance regulated in the UK?

If the loan is secured against your home or a property you plan to live in, the loan is regulated by the FCA. The exception is if the loan is arranged as a second charge to be used for business purposes.

If the loan is a second charge for business purposes or secured against an investment property, the loan is non-regulated, in the same way as a standard buy to let mortgage.

How can I calculate my expected costs?

Calculating your bridging finance costs can be simple, especially when using a reputable broker. Here at ABC Finance we will calculate the total costs for you.

The gross loan is the total amount borrowed, including fees and interest for the term of the loan. The net loan is the amount after costs, available to you. The difference between the gross loan and the net loan is how much the loan will cost over the pre-agreed term.

The only things to add are the valuation fees or other fees that are not to be added to the loan.

If the interest is to be paid monthly rather than added to the loan, this must be taken into account. If you borrow £100,000 at 0.7%, the interest is £700 per month.

To work out your costs, use our bridging loan calculator or speak to one of our advisors.

Bridging loan case studies

Second Charge Bridging Loan Secured for Buy to Let Property Refurbishment

See how we facilitated a £20,000 bridge loan for a client facing tenant issues, enabling property refurbishment and profitable sales despite financial hurdles.
Read More

Non-Regulated Development Exit Bridging Finance

Explore our successful refinancing case where a client transitioned to a bridging loan, cutting costs and increasing profits on their recent property development project.
Read More

Bridging Loan Secured to Complete Work on New Build Property

Discover how we helped a client secure £300,000 for a new build, avoiding high fees and monthly assessments, ensuring a smooth transition to their dream home.
Read More

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