Development Finance

Speak to one of our expert advisors regarding bridging loans and development finance.

These two sources of finance can be used when other ways of raising funds such as applying for a mortgage are unsuitable. To speak to one of our advisors about a potential development project call us on 01225 962456.

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What are Bridging Loans?

A bridging loan is traditionally used to borrow funds on a short-term basis typically around 12 months. As the name suggests these loans are for ‘bridging’ the financial gap between the sale of your old house and purchase of a new one.

See below the uses for bridging loans, the types of bridging loans and FAQs.

What can bridging loans be used for?

  1. Building your dream home

A bridging loan can cover the cost between purchasing and developing on land before getting a mortgage, once the construction is complete. This works similarly if you purchase an uninhabitable property until you can apply for a mortgage.

  1. Renovating your home

Bridging finance could cover the cost of a renovation until you are able to get a remortgage based on the increased value of your home.

  1. Property chain fixing

In a broken property chain a bridging loan can enable a buyer to proceed with their plans even if the sale of their own property falls through.  The loan would mean the buyer can proceed to move into their new home whilst still attempting to sell their current home.

  1. Purchasing a property at auction

The process of getting a mortgage may be too slow or unsuitable for an auction property so the loan could secure the property until a mortgage can be applied for.

 

See below the types of bridging loans available.

Types of Bridging Loans

There are a number of different types of bridging loans available, speak to one of our qualified advisors to find out the one that could work best for you.

Variable Rates

Variable rate bridging loans mean that the interest rates can potentially follow the Bank of England’s base rate which can change as frequently as every 6 weeks.

Open Bridge Loans

Open-bridge loans have no set date for settling the loan, this is useful for buyers who want to purchase a new home but haven’t sold their existing one yet.

Fixed Rates

With fixed rates it means that the interest rate won’t change throughout the loan period meaning that the monthly repayments will stay the same.

Closed Bridge Loans

Closed-bridge loans are for when a date has been fixed for the loan to be fully repaid by. This could be used for someone that is selling a property and waiting to receive payment to repay the bridging loan.

Bridging FAQs

Why are the benefits of bridging loans?

Bridging loans can be arranged very quickly meaning that if a borrower requires fast access to funding then bridging loans can be a viable option.

You can repay bridging loans back early without any penalties and this can usually save you money on interest.

These loans allow borrowing against properties that are not suitable for a mortgage.

What are the alternatives to bridging loans?

One alternative could be to get a mortgage on the second property, this would mean a loan with a longer term but it could work out less expensive.

Unsecured personal loans may be another option, you can borrow amounts up to £50,000 so may be more suitable to bridge a smaller amount. These loans also tend to have annual interest rates meaning it could be less expensive.

What are the risks?

If you are using the loan to purchase a new house before you find a seller for your current home then you risk having two properties to pay for.

As bridging loans are designed to be short -term high value borrowing, lenders often expect high returns meaning that interest rates can be high and missing a repayment can incur large fees.

As lenders will have secured the debt against the property there is the risk of losing the property if you cannot afford the repayments.

Can I get a bridging loan if I have bad credit?

Yes, even with bad credit there is the chance that you are able to get accepted for a bridging loan. Speak to one of our advisors who will be able to talk you through your options. Taking out a bridging loan and ensuring each repayment is met can even help to improve your credit score.

What is Development Finance?

Development finance is another short-term loan option granted for development or refurbishment of a property. This type of loan is usually used by experienced property developers in order to raise funds for their next project.

Advantages of Development Finance

  • Access to the funds can be granted quickly
  • Short-term commitment
  • Gives opportunity to raise needed funds for property or business
  • Can be used to pay for materials and contactor fees
  • Can have low interest rates improving project rate of return

Disadvantages of Development Finance

  • Lenders can have harsh criteria to be eligible
  • Unaccounted for costs can diminish profit levels quickly
  • Can require a number of legal documents and paperwork

Development Finance FAQs

How much can I borrow?

Lenders will have their own minimum and maximum available amounts, these can range from tens of thousands to millions of pounds.

What type of developments can I borrow on?

You can get development finance on a range of projects including: new builds, refurbishments, residential and commercial.

Can first time developers get development finance?

Yes, there are lenders who will lend to first time developers. However, there is a number of checks and documents required to see if you eligible.

Please note:

For development finance we act as introducers only.

The FCA does not regulate development finance and some forms of bridging finance.