In This Article
What is bridging finance for property development?
Bridging finance for property development is a short-term finance agreement taken against the land, a property that is to be replaced or a part-built property to finish the project.
The project could be anything from a single house to a large block of offices or flats. Bridging finance for property developers is often released in stages.
For example, if a property developer has just bought some land which is to be developed, the loan will be calculated upon the gross development value of that property once it is finished.
The lender, however, may not be willing to lend all the money in one go, so they will release it in stages.
This may mean using the money to put in the foundations or footings of the property at which point a surveyor would attend to inspect the work before agreeing to release more against that property.
The surveyor would visit numerous times during the build period to inspect the work, reporting back to the lender before they release further funds.
The term commonly offered for bridging finance for property development is usually up to 2 years. Once a property is finished, it is then time to exit the bridging loan.
This may be by the sale of the asset or refinance onto a more standard term mortgage.
You must be clear on your exit strategy when you are considering bridging finance for property development.
The reason for is that bridging finance is expensive, so being tied to it can be very dangerous.
Make sure you inform your bridging loan broker of your intentions when it comes to how you plan to exit the loan as this will be needed by the lender when underwriting your application.
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How much can you borrow when taking bridging finance for property development?
The amount that you can borrow would depend upon the project itself, but some lenders do not have a specified maximum.
This means, for example, that if the building was going to cost £50m to complete, there are lenders that could consider a full loan if there were enough assets to secure the loan. This, of course, would be very specialised as there are not many lenders who would offer this.
If you only have one asset to secure the finance to, a common maximum loan to value is approximately 75% of that asset value. As bridging finance is generally paid on a retained interest basis, the maximum loan to value would be based on the gross loan which includes the interest over that period.
Different lenders have different criteria when it comes to their maximum loan, so make sure you find an experienced bridging loan adviser that can tell you the maximum you could borrow based on the property in mind and your situation.
Can Limited Companies get bridging finance for property development?
Many bridging loan lenders are not concerned about whether the bridging finance is lent to either an individual or a limited company.
It is not uncommon for a limited company to be the applicant when it comes to a property to be developed. The reason for this is that it may work out to be more tax efficient depending on the circumstances.
When assessing a bridging loan for a limited company, the lender would be more interested in the directors of the company and their background.
This is especially the case if the company is new. For example, a new company taking a bridging loan for property development may be a special purpose vehicle which has been set up just to hold property.
With no previous financials to assess, the lender lacks detailed information apart from the directors themselves. They would need to obtain a full understanding of the director’s credit history, income and possibly their residency status and outgoings.
It may also be required that the limited company directors have to sign personal guarantees when taking bridging finance for property development.
Speak with an experienced bridging loan broker that will be able to assess your full situation and work out your options regarding bridging finance for property development.
Can you get buy to let bridging finance for property development?
Although you may get bridging finance against a property which will be let after it is finished, the bridging loan itself will not be on a buy to let basis.
The development finance will be a standard bridging loan and will either be regulated or unregulated depending on the use of the property on completion.
If the property is to be let when the project is finished, it may be that you then need to remortgage the property onto a buy to let mortgage, subject to the property itself, the rental income and the applicants.
If this is the intention, you should talk to a mortgage adviser who can advise you about taking out development finance to make sure that you would qualify for a buy to let mortgage in the future.
Is there a minimum income necessary to get bridging finance for property development?
Usually, with development finance, the interest is retained on the mortgage and paid at the end when it is cleared.
As a result, no monthly mortgage payments are usually required.
This means that not many lenders have a minimum income criteria when it comes to a bridging loan for property development.
Lenders will, however, have their criteria around the applicant’s circumstances so speaking with an experienced bridging loan broker is always beneficial.
If you need advice or would like to be matched to an experienced bridging loan adviser or mortgage adviser, please complete the contact form.
Do you get commercial bridging finance for property development?
You can get commercial bridging finance for property development. These are bridging loans that are taken to develop commercial properties.
Commercial properties could comprise shops, offices, factories, pubs, hotels or more. Bridging loan lenders have different rules about what they will lend on, but a bridging loan adviser will be able to discuss your plans with you and recommend a lender accordingly.
For example, if you plan to develop a pub using a bridging loan, you would need a lender that is happy to lend on commercial properties.
The bridging loan lender would need to know the plans for when the pub is finished, whether you plan to sell it, or if you are going to remortgage it onto a commercial mortgage.
If you plan to remortgage onto a commercial mortgage, you should find out in advance whether you would qualify for this.
Speak with an experienced commercial mortgage adviser that can understand your plan and make a recommendation. Your commercial mortgage adviser will likely be a member of the National Association of Commercial Finance Brokers (NACFB).
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Can you get bridging finance for property development if you have bad credit?
Developers with an adverse credit history can qualify for bridging finance. As the interest is usually retained, this removes any need to make payments on the development finance.
Lenders do all have different criteria though, so it may be that, depending on how bad the adverse credit was, some lenders may not offer the bridging finance. Adverse credit can mean many different things.
For example, it could be bankruptcies, property repossessions, individual voluntary arrangements, county court judgements, defaults, debt management plans, arrears and more.
A skilled bridging loan adviser would be able to assess your credit report to understand what the bad credit was. With this information they could recommend a bridging loan lender accordingly, that could consider your application.
If you would like to find out more about your credit history, go to Check My File and sign up for a free trial.
Do you need a specialist mortgage broker for bridging finance for property development?
It is recommended that you find a skilled bridging loan adviser or development finance broker who can give you the advice that you need for bridging finance for property development.
Some standard mortgage advisers may advise on this, but it is worth the amount of experience that each broker has.
Some mortgage advisers may not have much day-to-day experience in placing such transactions.
This is in the same way that a development finance broker may not have much experience in placing residential transactions.
Bridging loans for property development are a very specialist area so finding a broker with the right experience is extremely important.
Conclusion
It is possible to get bridging finance for property development whether developing a residential property, flats, offices, pubs, or more.
Some lenders often have no maximum loan amount and it will be based on the property value itself.
As interest payments are retained over the period, rather than paid monthly, this means that the interest rolls up over time.
As a result, this can be expensive if you do not have a clear repayment strategy for clearing the loan after an agreed period.
If you are looking for bridging finance for property development, make sure you find a bridging loan broker that has the right experience.
Please complete the contact form if you would like I NEED ADVICE to match you with an experienced bridging loan broker that can inform you of all options.
They are experienced, which can boost your chances of being approved.
