Bridging Loan for Property Development

A bridging loan is a way to access a large sum of money, quickly, which makes this a popular option for property development. There are a few things to consider before taking out a bridging loan, however.

What is a bridging loan for property development?

There are a few types of bridging loan, all of which are high value, short term loans. There is no cap on how much can be borrowed and they have a maximum term of 12 months.

A bridging loan for property development is specifically designed to help you get your residential or commercial property development project up and running quickly. The aim is to give you the funds you need until you sell the property or take out longer-term finance such as a mortgage.

The usual approach with a bridging loan for property refurbishment is for the loan to allow you to buy a property plus pay for all the work required. You repay the loan by selling the completed property – or taking out a mortgage on it.

How does a bridging loan for property development work?

Bridging loans for property development are flexible and a broker like GPS Financial will be able to find you a product that matches your needs. A big advantage of this type of development loan is that you can raise capital very quickly – application, approval and cash release can all happen in a matter of days.

Bridging finance usually has a fixed rate of interest as the term is short. There are two types of loan: closed bridging loans and open bridging loans. A closed bridge has a set repayment date. An open bridge is more flexible – you repay it whenever you’re able to, but usually with a 12-month deadline.

You can take all of the loan in as a single lump sum, or choose to release the money as you need it. You only pay interest on the money withdrawn, and the amount you owe rolls up – you pay the total interest when you repay the debt.

What can you use a bridging loan for?

Bridge loans are available for all kinds of property development projects. You can redevelop a home to live in, to rent to tenants or to sell. Commercial property bridging loans also exist and work in a similar way for business-focused projects.

Many people use bridging loans to buy property at auction or pay for planning permission on a piece of land to attract investors.

Are there any disadvantages to a bridging loan for property development?

The main disadvantage to a bridging loan is the high cost of borrowing compared to a mortgage. You will pay an arrangement fee and high interest rates – plus interest applies on a monthly basis. Failing to meet your repayment deadline will also result in additional charges.

Lenders want to see a clear ‘exit strategy’ for how you will repay the loan, without this you may not get approval. Plus, some lenders will require you to have a proven track record in property development as part of the approval process.

Are there any alternatives to a bridge loan for property development?

Some people find that it is helpful to set up a limited company for the development, as you can borrow finance against profit in your business. Development finance is another option to explore and you could look at asset finance or invoice finance too.

How can GPS Financial help?

As a team of experienced property finance professionals, we are here to discuss all the options available to you for your project, including bridging loans for property development.

We will sit down with you and explore your situation and the details of the project you have in mind. Because we work with many lenders – ones you won’t find on the high street, we can save you time and legwork researching the market for the right lender to match your required loan amount and cash flow needs.

We’ll also aim to save you money by seeking out the most competitive interest rates for your bridging loan – keeping arrangement fees in mind too. In addition to seeking out the right product, we’ll make sure you have a viable exit strategy and a long-term plan for financing the completed property as needed.

Contact us today for an initial chat with one of our advisors about how we can help. We are authorised and regulated by the Financial Conduct Authority.