In This Article
What are bridging loans for property development?
Bridging loans for property development are available to people that wish to purchase or refinance a plot or building to develop it.
Bridging loans work short-term, meaning development should be completed within a specific time to refinance or sell it to redeem the bridging loan.
A typical period for a bridging loan for development is around 12 months, sometimes stretching to 24 months, depending on the lender and the lender’s terms.
Usually, the lender would agree on a net loan with interest being retained on top of the balance, giving the gross loan, which is redeemed at the end of the bridging term (or earlier if the loan is redeemed early). For development Finance, the loan is usually released in stages as the build progresses.
The gross loan is agreed based on the loan to value of the GDV (gross development value), with the initial advances being based upon the current value of the plot of the building, with more being available as the site becomes more valuable.
Bridging loans for property development are a specialist area and can be expensive.
As a result, it is important that you take expert advice when you are considering a bridging loan.
Your bridging and development loan broker will likely be a National Association of Commercial Finance Brokers member.
Many will be able to give you a free consultation so you can understand the numbers for your development finance.
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Can first time buyers get bridging loans for property development?
Some lenders are willing to offer bridging loans for property development to first time buyers.
This is not the case with every bridging finance lender, as some will need to see that you have experience buying and developing properties before.
Lenders need to be comfortable that you are in a position to complete the development on time so that you are not late in repaying the bridging loan.
This can come down to an applicant’s experience and knowledge from previous projects and should serve them well in making sure things go to plan.
If you are a first-time buyer considering taking a loan for property development, you should look for an experienced bridging loan broker who can find a suitable product for you.
How would you exit bridging finance for property development?
The most common way to exit bridging loans for property development is to refinance the building once it is finished or to sell it on completion.
If you are looking for a refinance, depending on the property, this would determine whether you need a commercial or a residential product.
For instance, if you have taken a bridging loan for the development of a residential property that you plan to live in, you may wish to now refinance the bridging loan onto a standard mortgage.
Standard residential mortgages are assessed based on your affordability and your outgoings.
As a result, if you are planning to take a residential mortgage in the future to exit your bridging loan, you should talk with a mortgage adviser to make sure that you meet the criteria to do so.
This is to reduce the chance of any surprises later.
If the property is commercial, for instance, and a bridging loan has been taken to build a block of flats you plan to keep, you may need a commercial mortgage to refinance them.
Commercial mortgage lenders will need to understand your potential rental income from the units and your personal situation.
A commercial mortgage adviser could give you an idea of whether you qualify for a commercial mortgage to plan your exit strategy.
Are specialist brokers needed for bridging loans for property development?
Bridging loans for property development are a specialist area. As a result, it is recommended that you find a bridging and development broker that can talk you through your options.
Most will be willing to offer you a free consultation before any chargeable work is undertaken.
If you are planning to refinance your development loan in the future, it is also essential to speak with a mortgage adviser that can tell you whether you qualify for a standard mortgage or not.
This can help you accurately plan your exit strategy for paying back your bridging finance.
If you would like I NEED ADVICE to match you with an experienced advisor that can tell you your options. Please complete the contact form.
What are commercial bridging loans for property development?
Along with residential bridging loans, commercial bridging loans are also available for property development.
For instance, if you were building a housing estate, you would likely need a commercial bridging loan rather than a residential one due to your living intentions.
Bridging loans for property development when the building is commercial can be taken out against building such as pubs, hotels, offices, factories, warehouses and more.
For the development of one of these buildings, a commercial bridging loan would be taken on a short-term basis, with the loan being refinanced to a standard commercial mortgage or sold once the property is completed.
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What if the property developers have bad credit?
Getting a bridging loan for property development is still possible, even if you have bad credit.
Not every lender will offer property development bridging finance to credit-impaired applicants, but many will.
Bridging and development loans usually work on a roll-up basis meaning that monthly interest payments are not required as the interest is retained on top of the balance and redeemed in the future.
This means that bridging loan lenders can be flexible with adverse credit if the applicant meets the rest of the criteria.
Adverse credit can come in various formats, such as arrears, county court judgements, individual voluntary arrangements, bankruptcies, debt management plans, defaults, and more.
Make sure to tell your bridging loan broker or mortgage adviser the full details of any adverse credit you have. This will allow them to look for a lender based on your situation. If you want more details about your credit history, you can go to Check My File to sign up for a free trial.
Conclusion
It is possible to get bridging loans for property development whether you are an experienced property developer or inexperienced property developer.
First time buyers and people with adverse credit can also be considered bridging loans for property development.
Bridging loans are a specialist area, so expert advice is always recommended.
In addition to getting advice on the bridging loan, you should also ensure that you thoroughly do your due diligence on your exit route.
Most bridging and development loan brokers will be willing to give you a free consultation so that you know your options.
If you would like I NEED ADVICE to find you an experienced bridging and development finance broker. Please complete the contact form.
They are experienced, which can boost your chances of being approved.
