Exit and development finance is a short-term loan to provide you with additional funds to complete your development.
The loan term gives you enough time to finish the work needed and sell the development afterwards.
Development loans and Development finance loans are both bridging loans for property development, however one is more complex than the other.
Development finance and property bridging loans have no similarity except both are secured on the property. Whereas bridging loans for property development are mainly non-status and rely almost entirely on the asset, with development finance the promoter’s experience is paramount. Planning, construction and sales risk all need to be measured and managed with regards to development finance.
Whereas bridging relies almost totally on the valuation, development finance also looks at the human side, the cost of construction, planning and the procurement method. Will the construction be delivered by an established contractor under a JCT contract or is the property developer also acting as the builder and employing sub-contractors?
Bridging lenders can accept either but clearly the latter has a greater element of risk with cost overruns and delays falling on the property developer’s shoulders without, recourse to a third-party.
Risk and reward must be in parallel and whereas the High Street lenders, that charge the lowest interest rates, consider 50% of Gross Development Value (“GDV”) a suitable maximum, often this is inadequate and specialist bridge lenders will provide 60% or perhaps 65% of GDV, equivalent to 75% or 80% of total development cost.
Sometimes even 65% of GDV is not sufficient and greater gearing can be provided for larger development finance projects, say where the loan is in excess of £10m, either by stretched senior debt or adding a mezzanine piece. This enables developers to undertake a greater number of projects within their capital resources.
A bridging loan is a short-term loan used to buy or invest in property. These are typically up to 12 months in duration and are repaid when long-term funding is in place – which can be either a mortgage, or through the sale of the property or another asset.
They are fast, versatile, short-term property loans used in all kinds of property transactions; from downsizing in retirement, to flipping properties for a profit, to buying property at auction. The use-cases are numerous and varied.
For example, bridging loans are often used to buy a new home while you're waiting for your current property to sell - bridging your gap in funding.
Bridging loans can be arranged much faster than standard mortgages; however:
As bridging loans are secured against property, the risks are relatively small to your lender. This means interest rates are fairly low compared to other types of short-term finance.
Interest is calculated and charged monthly; however, if you can pay back your bridging loan early, you'll stop being charged interest on the same day you repay.
For example, if you take out a 12-month bridge but find you're able to pay it back after 6 months, you'll only be charged 6 months interest.
Interest can also be 'rolled up' within the loan, so you don't need to worry about monthly payments - instead, you can opt to repay the entire balance (loan and accrued interest) in one lump sum.
Broadly, the main advantages of bridging finance are:
In many cases, using a bridging loan can mean not having to rush the sale of your house while you buy a new property, and it can also allow you to move quickly in the property market and avoid missing out to cash buyers.
There is a range of different costs involved with bridging finance. The exact bridging loan cost will be dependent on the complexity of your case, loan size, and other factors.
Here’s a list of potential bridging loan costs:
The interest you repay on your bridging loan is calculated as a monthly rate instead of an annual rate, like with a standard mortgage.
Because of the short-term nature of bridging finance, interest rates are usually much higher than a typical mortgage, but you only need to pay the rate for a much shorter period.
Bridging loan rates are affected by several factors, including:
You can borrow up to about 80% of the value of the property you’re using as security.
It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance.
Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan.
You can get a fast bridging loan within a few days. However, not all bridging loans can be arranged this fast, and it depends on your situation and the properties involved.
You will also likely need a broker to push an application through this fast, and it may incur additional fees from your lender and solicitor to expedite your case.
On average, most bridging loans take between 3 to 6 weeks to arrange as a standard timeframe.
Every bridging loan lender in the UK has their criteria that a borrower has to fulfil to qualify for a loan. Whilst most lenders look for low-risk borrowers, many others have niche areas they specialise in and can facilitate.
As a rule, there are two essential criteria you'll need to meet:
Since the loan is secured against property or other collateral, a lender won't need proof of income. Equally, your credit history won't affect an offer as long as any outstanding debts or adverse credit doesn't impact your ability to repay the loan. However, if you do have a bad credit rating, you may have to pay higher interest rates.
Other basic criteria you will need to fulfil include:
If you have any questions about your eligibility for a bridging loan, speak to one of our advisors who will be happy to discuss your situation.
It is fairly common practice to speak to a bridging loan broker for advice on taking out a bridging loan.
You can go direct to lenders, but not all lenders accept direct applicants. Also, most people use a bridging loan broker to guide them through the process, compare rates and get the best deal.
