If you need access to funds fast to start the ball rolling on a property development or property refurbishment project, a short-term bridging loan could help you get things moving straight away.
What Is A Bridging Loan For Property Development?
Bridging finance is for property developers, landlords and investors who only need to borrow money for a short period of time. Loan terms can range between three to 12 months or up to 24 months if needed.
This type of loan is designed by specialist lenders to help you get your residential or commercial property development project up and running quickly. It will help plug a financial gap until you sell or take out longer-term finance.
How does a bridging loan for property development work?
Bridging loans for property development can be very flexible. Loan amounts can range from a modest £25,000 to millions of pounds and interest rates can vary between less than 1% to 2%.
You can take all of the loan in one go, or dip in and out as and when you need the money. Interest charges are only triggered when you withdraw the money.
Interest is rolled up and repaid at the end of the loan, which means you can use all of the loan for what you need before paying the interest.
Having said that, you can pay off the interest as you go and there are no early repayment penalties.
At the end of the project you may be able to switch your bridge loan to a mortgage if you plan to live in the property.
Before taking out a bridging loan it’s important to have an ‘exit plan’ to help you anticipate the loan term, how much you’ll need to borrow, and how you’ll repay it.
What Can You Use A Bridging Loan For?
You may use a bridge loan for any type of property development or refurbishment project.
You can use it to buy a property for residential reasons, either to develop and live in, or sell on to make a profit.
They are also used for large and small-scale commercial projects, such as building industrial units or refurbishing a row of shops with flats to transform and sell.
You can also use a bridge loan to make an instant transaction for a property at auction and pay for planning permission on a piece of land, so you can attract an investor.
What Types Of Bridging Loan Are There?
Open and Closed
Closed bridging loans offer a very short term tide-over, and your lender will want a guaranteed plan for the loan to be repaid.
Open bridging loans offer longer terms, usually 12 to 24 months. A lender will be interested in the project’s viability rather than when you’ll repay the loan.
Heavy Or Light?
Heavy refurbishment loans are for large-scale development projects that require planning permission and building regs. Light refurbishment loans are for projects that require less intensive works, such as replacing ceilings and floors.
Why Choose A Bridging Loan For Property Development?
Bridging loans offer finance fast – you can apply for one after breakfast and have the funds in your bank account by dinner time, ready to start things moving the next day.
You can borrow small, medium and large amounts of money depending on the scale and viability of your project, and repay the loan before the term ends without penalty.
Why Not Take Out A Regular Property Loan?
Using a traditional mortgage route for property development will take much longer. A lender will be more concerned about your credit rating than your project’s potential.
You may not qualify for the amount you need to borrow and you’ll be subject to early repayment penalties.
Mainstream lenders won’t take a risk on properties that need lots of structural work. In fact, your application will be declined if the property you want to buy costs under £50,000 and is without a usable kitchen or bathroom.
Are there any disadvantages to a Bridging Loan?
Arrangement fees will also be charged and interest rates can be high. Repaying the loan as soon as your project has completed and sold, should be your priority.
If you’ve not paid off the loan by the end of the term, you’ll incur bridging fees.
What Are The Alternatives?
Setting up a limited company for your development may help you borrow finance against profit you have in your business. Commercial bridging finance, asset finance, or invoice finance may be used instead.
How Can CS Mortgage Solutions help?
We are authorised and regulated by the Financial Conduct Authority and have our registered office in England.
This means we’re qualified to discuss finance options with you and recommend lenders that offer bridging loans for property development.
We work with a range of lenders you won’t find on the high street. This means we’ll save you time and legwork researching the market for the right lender.
We’ll also save you money by helping you achieve the most competitive interest rate for your bridging loan.
We’ll help you calculate the loan amount you need, complete your application with you and submit it on your behalf.
This will help speed up your loan application so you can access the cash flow you need as soon as possible. So all you need to focus on is getting your project off the ground.