How to Obtain a Bridging Loan for Property Development

When you have to develop your property, some form of financing is required, and this is why so many people seek the help of bridging finance.

Bridging loans for property development are excellent for property developers as they are not only helpful, but you can also get them pretty quickly. In many cases, you don’t have too much time to wait around for funding, so development finance comes as a saviour.

If you’re dealing with a home development project and you’re planning to take a bridging loan for property development, here is what you need to know about this loan.

How Does Bridging Finance for Property Development Work?

Development finance is used when a customer who’s into property development needs quick funding. People use it to finish a project that is in development, after which the customer can repay it once capital is generated.

A bridging loan for property development can be used by the borrower for multiple types of development projects. For example, someone can use it to start off a project that hasn’t yet developed. They might also use it to change or renovate parts of the project that don’t benefit from a mortgage. In other words, it’s a very flexible type of financing.

How Can You Get Property Development Finance?

Bridging Loan For Property DevelopmentIn general, bridging loans for property development are not always offered directly by institutions that work with the public.

Instead, you will have to apply through a broker to get the best deals. Property development finance itself will then be offered by either a lender or a private bank.

To be eligible for this form of financing, you must have a property that you can secure to the loan. You need to guarantee lenders that you will be able to repay the bridging loan on the term.

If you don’t do that, they could take your property and recover their losses. Many customers usually secure this financing against the site they’re developing.

Nevertheless, you may also choose to do it with separate property, in case you own one. The advantage with the latter is that you will be able to borrow a bigger amount, while the rates will be more convenient.

The Fees

Fees will also be charged when you’re going through the process of borrowing. For example, the first fee you will have to pay is the arrangement one. It is usually no more than 1%-2% of the capital, and you will pay it when you receive the loan.

Of course, interest rates will apply as well. They vary from a person to another and a series of aspects are influencing the percentage.

Typically, they are either rolled up and you can pay them at the end of the loan term, or you’ll have to deal with monthly charging. But interest rates for bridging loans are not the lowest you’re going to find. Although you have a chance to get some good deals depending on your situation.

To get the best rates, you need to have good credit, a healthy deposit, a good exit strategy and, ultimately, experience in the property development area.

Likewise, depending on who your lender is, you might have to pay an exit fee. Where it applies, it is typically about 1%-2% of the capital. Keep in mind that you will have to communicate an exit strategy when applying.

If you’re a property developer, it normally means you will either refinance with a residential or sell the developing property or an existing one. It is crucial for the lender to know what to expect once the term comes to an end.

What Do You Need to Get Development Finance?

There are two things that lenders may require from you when you apply for bridging finance for property development, depending on the situation.

Business Plan (Appraisal)
If you are planning to develop a property for commercial purposes, such as a shop under a flat, a hotel or anything of the sort, you might need a business plan.

Basically, when it comes to such developments, the lenders will want to be sure that your investment has to do with business, so they take no risk by offering you money. Typically, a specialist lender will have to deal with the case when it comes to businesses.

Income is not always necessary. However, a lender might want to know what you are going to do to fund the renovation works. You might plan on making renovations and selling the property you’re funding, but how are you going to do it with no income?

If you have enough equity to use when purchasing property without financing, then proof of income may not be necessary. But if your exit strategy involves remortgaging, you will have to show proof.

What Are the Pros of Bridging Finance for Property Development?

It Can Be Used for Multiple Property Types
One of the most crucial things regarding bridging financing is the property you’re going to secure to the loan. The good thing is that you can use these loans to buy all kinds of properties, such as shops, apartments, houses, and the list can go on.

Fast Bridging Loans
Time is of the essence for property developers, which is why a fast way of funding will always be preferred. Bridging loans are quick, so you will have access to the necessary money sooner than you think. Not to mention that this is a short-term loan, which offers quick access to the funds.

While usual lenders ask you for a lot of details upon granting you a loan, bridging lenders want to know more about the property you secure the loan with. Also, the repayment can be set in such a way that it is favourable to you during the one-year term.

Final Thoughts

Development finance UK is a great way for property developers to continue their project if they don’t have the necessary money to do so. Before you apply, make sure to consult with a financial advisor. He will tell you how to become eligible for the loan, and how to apply.

If you would like to apply for a bridging loan for property development, please complete the form below or contact us on 0203 393 9277 or email [email protected]