Can You Get a Bridging Loan for Property Development?

Laura Broad[1]

Laura Broad

Money Savings Advice Bridging loan property development

Any good property developer will know that if the perfect investment opportunity comes knocking, you don't want to let it pass you buy.

This sometimes means that you have to act fast in order to get all of your affairs in order and make a purchase before it's too late.

Why Do Property Developers Turn to Bridging Loans?

Bridging loans are popular for property developers as they give a quick cash injection before a long-term finance solution is resolved. They're ideal if you're buying a property at auction as you can then agree a mortgage at a later date.

This is where bridging finance is useful. In fact, it could even be the difference between the best property investment you ever make and the one that gets away.

Read on to find out what you need to know about taking out a bridging loan for property development and what some of the benefits and risks of doing so are.

Looking for other information on Bridging Loans This guide has info on 'Bridging loan options for property development' We have also writen extensively about:

We update all our guides regularly. If you are researching bridging loans and we haven't got an exact guide that helps you, keep coming back as we update daily.

What Is a Bridging Loan?

A bridging loan is a short-term finance option for when you need to borrow money quickly and can pay it back quickly too. They're a way to borrow a large amount of money (up to £250 million), and the loan term typically lasts anywhere from a few weeks to two years.

As property sales are not known for being a fast-moving process, sometimes there will be an overlap in waiting for a sale to complete and wanting to buy something else. Bridging finance is typically used in these situations to plug the gap between making a purchase of one property and money coming in from the sale of another.

Bridging Loans in Property Development

Bridging loans also have uses outside of that scenario. They're particularly favoured by homeowners, landlords and property developers due to the increased flexibility the loan gives you over a mortgage, for example, which can only be used for certain properties.

A bridging loan gives a property developer a quick cash injection before they secure longer-term finance.

A few examples of where this could come in handy include:

  • An investor wanting to make a quick purchase of a buy-to-let property at an auction
  • An investor wanting the funds to quickly do up a property before selling it on
  • An investor wanting to buy land or an uninhabitable property which wouldn’t qualify for a regular mortgage to develop quickly
  • A developer looking to raise the last remaining funds to renovate or convert a property before putting it on the market for sale
  • A developer needing the funds to buy a property awaiting planning permission which is needed before a development loan can be agreed

In short, you can think of bridging loans as being for three purposes in property development: securing a property quickly, getting a quick cash injection or funding works needed for long-term finance to be put in place.

How Does a Bridging Loan Get Paid Off?

Looking at this from a property development perspective, there are two different ways a bridging loan can be repaid: from the sale of one of the properties involved in the loan or securing longer term finance such as a development loan or mortgage at a later date.

You’ll typically need to have a good idea of which of these you will be using as you exit strategy to pay back what you owe before you borrow any money. This will also determine whether you get an open or closed bridging loan - open bridging loans can usually be paid off at any point before the end of the term, while closed loans have a set date for repayment.

Lenders tend to prefer closed loans due to the increased certainty around when they’ll be able to get their money back. This benefit is often passed onto you in the form of lower, more favourable interest rates on closed bridging loans which save you money in the long run.

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Bridging Loan Pros and Cons for Property Development

As with all forms of borrowing, there are both pros and cons to bridging loans for property development which mean they may not be suitable for everyone.

Benefits of Bridging Finance for Property Development

  • Fast access to cash. Simple bridging loan applications can be approved in days rather than weeks or months.
  • Flexible borrowing. You can borrow money for a far wider set of scenarios than you can take a mortgage out on, for example.
  • Flexible repayment options. Some bridging loans let you pay off the interest at the end with the proceeds from the sale so there are no repayments during the loan.

Disadvantages of Bridging Finance for Property Development

  • High-interest rates. As with most short-term finance options, bridging loans get you on the high monthly interest rates. Being charged monthly too, if you’re not on a fixed-rate loan then any small fluctuation in interest rates can add up significantly.
  • Risky if repayment falls through. Even for property development purposes, a bridging loan is still secured against a property you own - it might even have to be against the one you live in. If a sale goes wrong and you end up not being able to meet your loan repayment at the end of its term, you’re facing some big issues. At best this will be costly to fix, at worse your home could be repossessed.
  • Unregulated by the FCA. Bridging loans used for commercial purposes (basically any property that neither the borrower nor their immediate family will live in) are not regulated by the Financial Conduct Authority. This gives you less financial protection against mis-selling than regulated residential bridging loans would.

How to Find the Best Bridging Loan for Property Development

Different lenders have different approval criteria and aversion to risk - this can mean the difference in cost between providers can be pretty significant. The best way to get the best bridging loan for your property development project is to shop around and compare what you can get from different lenders. Alternatively, a broker could do this on your behalf for a fee.

To get a quote and get started, all you really need to know is how much you need to borrow, how much the property you want to secure the loan against is worth (whether that’s your own home or, more commonly, the property you’re planning to develop) and how long you will realistically need to pay back everything you owe.

Be aware that the longer you need to borrow money for, the more it will cost you in interest and the less profit you’ll make.

Quick Bridging Loans FAQs

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How Can Money Savings Advice Help You With Bridging Loans?

Here at Money Savings Advice, we have partnered with some of the UK’s leading Bridging Loans brokers. They have already helped thousands of people get the best Bridging Loan deal and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Money Savings Advice Author Laura Broad

Laura Broad

Laura is a professional content writer and learning designer, passionate about empowering people through straightforward, jargon-free content. When she's not reading or writing about all things personal finance, you can find her in the gym, barbell in hand.

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