Everything you need to know about bridging loans for property development
Bridging finance can be used for the development of property including refurbishments, permitted development conversions and ground-up new build property.
Fox Davidson Commercial Finance are bridging finance for property development specialists. We work with SME builders and development companies to secure finance on properties in the UK. We secure bridging finance for property development from £100,000 and can secure funding up to £100 million.
The funding we secure caters for all types of developments from light refurbishments to ground-up developments of multiple units.
Our clients are international but all funding is secured on property in the UK.
What are the terms for bridging finance for property development?
The terms for lending will depend on the type of development you plan to undertake. Developments fall into 3 categories and they are:
Light refurbishment involves no planning consent, no change of use (e.g. from residential C3 use to HMO C4 use). No structural work. Typically a light refurbishment will involve decoration, new bathrooms and a new kitchen.
Typical lending terms for light refurbishment are:
- 75% loan to value
- The cost of works can also be funded
- Interest rolled up or deducted from the gross loan advance
- Rates from around 0.4% pm (this is evolving as the market changes and cost of funding changes)
- Lenders fee of 1.5% to 2%
For light refurbishments lenders do not necessarily need you to have experience of completing previous projects.
Heavy refurbishment does involve planning or structural changes. An example of heavy refurbishment would be changing a house into 2 flats.
The lending terms are similar to a light refurbishment in terms of loan to value and fees, but the rate will be higher perhaps 0.8%.
Conversions and Ground up new build developments of single of multiple units.
Conversions from offices to multiple flats and ground-up new build developments are considerable more involved, and the terms vary from light and heavy refurbishment.
The loan to value is set against total costs including professional fees, land purchase costs, stamp duty and build costs. The most favourable lending terms will allow for lending up to 65% to 75% of initial costs and a maximum gross development loan to value of 65%.
The rates vary from around 4.5% to 12% depending on many factors.
The other main difference to light and heavy refurbishment is that lenders will charge an exit fee based on the loan amount or sometime the gross development value.
Why use a development finance broker?
There are many reasons to use a property finance broker to secure bridging finance for property development. We have spent many years building relationships and trust with the UK’s leading property development and bridging finance lenders. Many of our contacts at the lenders are known to us personally. We will collate all the relevant information and present it to the right lender, first time.
Bridging finance for property development lenders all have varying criteria including:
- Geographical lending restrictions
- Maximum loan to value for initial loan and gross development value
- An evolving appetite for certain schemes whether that is commercial student accommodation or single high-value units within the M25
- Client experience
- Type of development; Light refurbishment, heavy refurbishment, PD conversion or ground-up new build developments.
What information and paperwork is required for bridging finance for property development?
In our initial discussions with you Fox Davidson will ask you for information on yourself, the development scheme and the professional team including the architect and the building contractor, all of which will affect which lender we place the lending with.
The information we require will depend on the development with more information needed for ground up developments than compared to a light refurbishment.
Typically, we will require:
- Description of the proposed development
- Details of Contractor
- Development appraisal
- Cost Plan for construction
- Planning Consent and Sec 106 (if applicable)
- Plans and elevations for the development
- Statement of assets and liabilities and CV for borrower and/or Directors
- Accounts for the borrower if a trading company
- Details of previous developments