Bridging Loan For Property Development in the UK – How to get fast finance for property
Property development can be a lucrative career option or a profitable side hustle for people with a little business acumen who are willing to take a chance. Yet property development can also prove expensive. Many who embark on a development project do not have the funds they will need on hand.
Bridging finance refers to temporary finance options used by property developers. These cover an interim period of doing up the property before the property can be sold. Bridging loans are the most common choice for development finance.
Before applying for a bridging loan to support your property development project, understand the risks and rewards and know what terms to expect from bridging loan lenders.
Get approved in just 24 hours for a bridging loan below:
What Is A Bridging Loan?
A bridging loan is a popular finance solution for consumers who need to raise some extra funds for a property development project. You might be wondering: what is a bridging loan?
A bridging loan is a type of loan which is taken out with a specific purpose in mind. Most often, a bridging loan will be used to purchase a new or second property.
Bridging finance is offered to clients with a clear repayment plan from the sale of an existing property or lets, in the case of commercial properties.
Bridging loans are short-term finance solutions which provide large sums of money for property purchases. They enable a private or commercial client to buy a property before they have sold their current or existing property.
Most lenders will only agree to bridge loans if they foresee the borrowed money will be repaid following an upcoming property sale or the let of commercial properties.
One type of bridging loan is a refurbishment loan, which is a short-term finance solution for property owners who need to restore a property or do a little upkeep work. A refurbishment loan can be used for either commercial property or residential property.
This type of development loan can be used for everyday upkeep, such as plumbing or heating. It is more commonly sought out for a larger property conversion project, such as turning a house into a block of flats or transforming a residential property into a commercial workspace.
Bridging or short-term loans for property development are also popular, among:
1. First-time developers trying their hand at property flipping.
2. People seeking development finance to renovate or refurbish a property for an Airbnb.
One type of bridging loan for property development is a construction loan. These offer bridging finance for applicants looking to build a brand-new structure.
Construction loans work by providing capital for a set period. They cover a construction project which has already received planning permission.
To determine the loan amount and interest rate, bridging lenders will consider:
1. Disputes to planning permission.
2. The appraised property value of the finished structure.Get started online
Who Can Apply For A Bridging Loan?
Technically, anyone can apply for a bridging loan.
Bridging finance works for career property developers, landlords and property investors. Since a bridging development loan is more accessible than most mortgage options, it is also an option for first-time property flippers.
Unlike a traditional mortgage, the application process for bridging finance does not concern itself with the credit rating of the individual applying or their financial track record. Instead, each application is assessed individually.
Lenders check the business plan and exit strategy to decide if the property development project is a good investment.
Using A Bridging Loan For Property Development
Bridging finance is a necessary feature for most property development projects. The most popular way to raise bridging funds is to apply to a specialist lender for a bridging loan for property development.
Bridging finance is a quick alternative to traditional mortgages. The difference with property development is that often the applicant will not be selling an existing property to make money back. Instead, the return will be raised by the sale or let of said developed property.
Some key examples of what bridging finance might be used for in this way include:
- A brand new construction project.
- Turning the property into student accommodation.
- Making an uninhabitable property habitable.
Bridging finance lenders accept applications from anyone. Present a strong business plan and prove the project is a good investment for the lender.Get started online
How To Get A Bridging Loan
Loan Corp makes the whole process easy and stress-free.
An uncomplicated application from a viable candidate will take a few days to process. The applicant should receive a conditional offer from lenders in less than a week.
Any applicant hoping to secure bridging loans for a property should follow a few steps:
- Understand your exit strategy. The exit strategy is how you intend to make and thus repay the borrowed money. For a domestic buyer, this amount will be generated through the sale of an existing property. For a property development applicant, the exit strategy will depend on the business plan and the lease or use of the property.
- Contact Loan Corp and speak to an experienced bridging finance broker about the requirements of your property development projects. A no-obligation chat will help determine the largest loan amount you can expect. A broker will help prepare your application for submission to mainstream lenders.
- Submit your application! Working with Loan Corp will ensure that your application is the most professional to appeal to bridging loan lenders. A broker will pair your property development project with a suitable lender and request the best possible bridging loan to suit your property.
Get started below by applying for loans for property development with help from Loan Corp.Get started online
How much will be available to borrow?
As with other types of loans, the exact amount available will depend on the precise reason for the loan, as well as a business plan.
If the lender perceives the project as a profitable, safe investment, the applicant is certain to receive the offer of more money. If the business plan seems less secure, the offer will be less.
A typical bridging loan from a reputable lender will likely be between 50% and 80% of the property value.
While bridging loans for property development are a fast and effective financial solution, they tend to come with much steeper interest rates than traditional mortgages. A less-than-ideal credit rating is unlikely to prevent an applicant from receiving a bridging loan, but it will increase the interest rate. So, the better your credit rating, the lower your interest rates.
Use the Loan Corp bridging loan calculator to estimate your loan amount and realistic interest rates and additional costs.
Working with a loan broker
An experienced loan broker, Loan Corp, can help potential applicants compare bridging finance lenders and select the right provider and property development loan with complete confidence. Loan Corp works with more than 200 mainstream lenders of bridging loans for property development in the UK and internationally.
The key criteria for selecting your lender include the amount of money available, of course, but also the terms of the loan. This is a short-term loan, so you might be expected to pay more interest than you would for a long-term financial solution like a mortgage, but you should still compare interest rates to ascertain the best deal for your project.Get started online
Open Or Closed? The Different Types Of Bridging Loans
Once you have decided that bridging finance is the way to go for your property development loan, you will need to decide whether to apply for an open or closed bridging loan.
Open bridging loans
Open bridging loans are a viable development finance option for applicants who are unsure of how long it might take to complete the property development project and to repay the borrowed money. They are more difficult to secure due to the high risk of loss to the lenders.
An open bridging loan might prove the necessary source of development finance when the completion of the project is uncertain. This is ideal if you can find a lender willing to maintain the loan amount as long as required but expect to pay interest at a steeper rate.
It should be easier to find a lender willing to discuss open bridging loans if your property value is relatively high.
Closed bridging loans
The most common type of bridging loan for property development is a closed bridging loan. These have a fixed end date and usually have a clear-cut exit strategy built into the loan terms. Closed bridging loans are less of a risk to the loan lenders, and as such, the lenders are often more willing and able to offer a high sum of money and a reduced interest rate.
These are an ideal bridging finance solution for property development since the end date will be determined by the date of completion for the property, and lenders are more likely to make their money back through the sale or let of completed units.Get started online
Bridging Loans Pros & Cons
Bridging loans for property purchase or development can fill an otherwise unfillable gap in funds between purchasing the property in question and the sale or let required to make back the money spent.
There are positives and negatives to using bridging finance as a development loan. This is the case for both residential properties and commercial properties.
- The application process is faster, and bridging finance can usually be confirmed with a much quicker turnaround than other types of loans.
- Easier and faster to apply for than a mortgage.
- The loan is based on the future profitability of development projects, so the applicant does not require the same financial security or credit rating as they would with mortgage lenders.
- Expect the interest rate to be much higher than it would be for a mortgage.
- In the United Kingdom, many bridging loans for property development are unregulated by the Financial Conduct Authority. If you take umbrage with your loan lender or their terms, there is no protection available from the FCA.
- In some cases you will make monthly payments to cover the interest if a bridging mortgage is approved. Some bridging loan lenders also charge fees for a broker matching service and extra legal fees.
There are many positives to using bridging loans for property development. For one thing, most applicants would be unable to afford the cost of the property development project without said loan. Also, waiting for a mortgage to be approved might see that ideal opportunity slip through your fingers.
The application process is comparatively easy. The flip side is that many loan recipients will be expected to pay interest higher than they would for a traditional mortgage.
Ultimately it comes down to the options available to you. If you need a quick completion and your credit score is holding you back, then a bridge loan might be the ideal financial solution. In this case, Loan Corp can help find the ideal lender to support your property development project.
Can a bridging loan be used to build a house?
Yes! The type of bridging loan for property construction is referred to as a construction loan.
Are there alternative finance options?
Property development applicants may equally apply for bridging, temporary loans, or take out a more traditional mortgage. The right finance option depends on the applicant, their credit rating, and how much of a deposit they have the bring to the table.
Loan Corp can help you find the ideal property development finance solution for your bespoke requirements.Get started online