Development finance and bridging loans are both short-term property finance solutions, but they are designed for very different types of project. This comprehensive guide explains the difference between bridging and development finance, when to use each, and how the lending criteria compare for property developers and investors.
2
Development Finance wins
5
Bridging Loan wins
3
Draws
Typical Rate
7% - 12% per annum (plus arrangement and exit fees)
Term
6 - 24 months
Max LTV
70% of GDV / 90% of build costs
Development finance is a specialist short-term loan designed to fund property development projects including new build construction, conversions, and major refurbishments. Funds are released in stages (drawdowns) against construction milestones and the lender monitors build progress throughout the project. Development finance lenders assess the gross development value (GDV) of the completed scheme.
Typical Rate
0.55% - 1.25% per month
Term
1 - 24 months
Max LTV
75% of current property value
A bridging loan is a short-term loan that provides a lump sum secured against property or land. Unlike development finance, bridging finance releases the full loan amount upfront (or in one or two tranches), making it suitable for acquisitions, light refurbishments, and bridging the gap between buying and selling property. Bridging loans are a simpler form of short-term finance.
| Criterion | Development Finance | Bridging Loan | Winner |
|---|---|---|---|
| Fund Release | Released in stages against build milestones | Lump sum released upfront | Draw |
| Project Type | New build, conversions, heavy refurbishments | Purchase, light refurb, bridge to sell/let | Draw |
| Speed | 2-4 weeks typically | 5-14 days typically | B |
| Interest Costs | Only pay interest on drawn funds — more efficient for staged builds | Interest on full amount from day one — cheaper for short holds | A |
| Maximum Funding | Up to 70% of GDV plus 90% of build costs | Up to 75% of property value | A |
| Planning Requirement | Planning permission typically required before drawdown | Not required for acquisition bridging | B |
| Application Complexity | Detailed — costings, programme, QS report, planning docs | Simpler — property value, exit strategy, basic financials | B |
| Developer Experience | Most lenders require track record or relevant experience | Experience less important — focus is on asset and exit | B |
| Ongoing Monitoring | Monitoring surveyor inspections throughout the project | No ongoing monitoring after funds released | B |
| Exit Strategy | Sale of completed units, refinancing onto mortgage, or development exit finance | Sale of property, refinancing onto mortgage, or other capital event | Draw |
Advantages
Disadvantages
Best for: Ground-up new build construction, commercial-to-residential conversions, permitted development schemes, and heavy refurbishments requiring structural works and planning permission
Advantages
Disadvantages
Best for: Property purchases at auction, light refurbishments, bridge to let or bridge to sell, chain breaks, land acquisition before development finance, and short-term holding before refinancing
Development finance is a specialist type of short-term loan designed specifically for property development projects. Whether you are building new homes from the ground up, converting a commercial building into residential flats, or undertaking a heavy refurbishment, property development finance provides the funding to cover both the purchase of land or property and the build costs.
The defining characteristic of development finance is that funds are released in stages throughout the project. This staged drawdown process works as follows:
1. Initial drawdown — covers the property or land acquisition (typically up to 70% of the site value) 2. Build cost drawdowns — released at agreed milestones (foundations, superstructure, first fix, second fix, practical completion) 3. Monitoring surveyor visits — before each drawdown, a lender-appointed surveyor inspects the works to confirm the stage is complete
Development finance lenders assess the gross development value (GDV) — the estimated property value of the completed scheme — rather than just the current property value. This means developers can borrow more relative to their initial investment because the lender is lending against future value. The development loan amount available is typically up to 70% of GDV. Loans are usually structured over 6-24 months.
Typical terms for development finance are 6–24 months, with interest charged only on the drawn funds. Development finance works efficiently for projects with significant build costs incurred over time, as you only pay interest on what has been released rather than the full loan secured amount.
A bridging loan is a short-term loan secured against property or land that provides a lump sum of funding upfront. Unlike development finance, bridging finance does not involve staged drawdowns or monitoring surveyor inspections. The full loan amount is released at completion, giving the borrower immediate access to capital.
Bridging loans are used by property developers, investors, and business owners in a variety of scenarios including:
• Auction purchases — completing within 28 days when a mortgage is too slow • Light refurbishments — cosmetic works that do not require planning permission (new kitchen, bathroom, redecoration, garden works) • Bridge to let — acquiring a new property, carrying out minor works, and refinancing onto a buy-to-let or commercial mortgage • Chain breaks — purchasing a new property before selling an existing one • Land acquisition — buying a development site before development finance is arranged • Bridge the gap — short-term holding while arranging permanent finance or selling another asset, or property or refinancing existing debt
Bridging finance is a short-term solution that is simpler and faster to arrange than development finance because the lender is primarily concerned with the property value and the borrower's exit strategy rather than the viability of a development project. Finance brokers can typically arrange bridging loans in 5–14 days.
Understanding the key differences between these two types of finance is critical for choosing the right product for your project. The difference between bridging loan vs development finance comes down to structure, purpose, and cost.
How funds are released — This is the most important practical difference. Development finance releases funds in stages as build milestones are achieved. Bridging finance releases the full amount as a lump sum. For a project with significant build costs spread over months, staged drawdowns mean you only pay interest on what you have drawn, saving considerably on interest costs throughout the project.
What they are designed for — Development finance is purpose-built for construction projects: new builds, conversions, and major refurbishments requiring planning permission. Bridging loans are designed for property acquisitions and lighter interventions. Bridging and development finance serve different needs — using a bridging loan for a major development project means paying interest on the full sum from day one, which is inefficient.
Maximum borrowing — Development finance can stretch further because finance lenders assess against the gross development value. A property developer can often access 70% of GDV and 90% of build costs. Bridging loans typically max out at 75% of the current property value. The loan amount available through development finance is generally higher for qualifying projects.
Cost structure — Both charge arrangement fees (typically 1–2%) and may have exit fees. Development finance also involves monitoring surveyor costs at each drawdown stage. Bridging loans have simpler fee structures but charge interest on the full loan secured amount from completion. Finance can be used in different ways — solutions should be evaluated on total cost vs development finance alternatives, not just headline rates.
The lending criteria for bridging and development finance reflect their different purposes and the varying levels of lender involvement throughout the project.
Development finance lending criteria: • Planning permission in place (or permitted development rights confirmed) • Detailed cost breakdown and build programme for the development project • Quantity surveyor (QS) report for larger schemes • Developer track record — most finance lenders prefer experienced property developers, though some lend to first-time developers with the right project • Realistic GDV assessment supported by comparable evidence • Clear exit strategy — typically sale of completed units, refinancing, or development exit finance • Site ownership or purchase of property or land included in the finance • Personal guarantee from developers
Bridging loan lending criteria: • Property value and condition assessment • Achievable LTV (typically up to 75%) • Clear exit strategy — sale, refinancing, or other capital event • Evidence of ability to service or roll up interest • Basic financial information — less detail than development finance lending • Property type acceptable to the lender • Legal title and ownership of property or land confirmed • Loan secured against the asset being purchased
Property developer experience is a much more significant factor for development finance than for bridging. A first-time developer may struggle to secure development finance from mainstream finance lenders but could readily obtain a bridging loan for a light refurbishment project. Finance lending criteria for development are considerably more rigorous.
Yes — bridging and development finance frequently work together as part of a larger property development strategy. Using both bridging loans and development finance in sequence is common practice among experienced developers and investors.
Land or property acquisition via bridging, then development finance for the build — A developer uses a bridging loan to purchase land or property quickly (perhaps at auction or before planning permission is granted), then arranges property development finance once planning permission is in place. The bridging loan is repaid from the development finance facility, with funds released in stages as the build progresses.
Bridging for initial purchase and cosmetic works, then refinance — For residential or commercial properties that need only cosmetic improvements (refurbishment rather than structural works), a bridging loan funds the purchase and light works. Once complete, the developer refinances onto a commercial mortgage or sells the new property.
Development finance for the main project, development exit finance for the sales period — After practical completion, the developer switches from development finance to development exit finance — a type of bridging that reduces costs during the sales or letting period while completed units are marketed.
Finance brokers who specialise in property development understand how to structure these sequential finance solutions to minimise costs and ensure smooth transitions between products. At Commercial Mortgages Broker, we arrange both bridging finance and development finance and can plan the full finance journey for your project. Contact us for expert advice from our team.
The decision between development finance and a bridging loan ultimately depends on the nature of your development project and the type of property works involved. Choosing the right finance solution can significantly affect your project's profitability.
Use development finance if: • You are undertaking a new build construction project • The project involves significant structural works, conversion, or demolition • Build costs represent a large proportion of the total project cost • You need to borrow against the gross development value of the completed scheme • The development project will take 6–24 months and involves multiple construction phases • Planning permission is in place or permitted development rights apply • You are an experienced property developer with a track record
Use a bridging loan if: • You are purchasing property or land quickly (auction, chain break, time-sensitive deal) • The property needs only cosmetic or light refurbishment (no structural works or conversion) • You plan to hold the property for a short loan term before selling or refinancing • You need funding released as a lump sum without staged drawdowns • The project does not require planning permission • You need faster access to funds than development finance can provide • You are a property investor rather than a developer
Use both in sequence if: • You need to acquire a site quickly before development finance is arranged • Your project involves an initial acquisition phase followed by a construction phase • You need development exit finance to bridge the gap between completion and sale • You are combining development and bridging as complementary finance solutions
Whether your project calls for bridging, development finance, or both in combination, working with experienced finance brokers ensures you access the best rates and structures. Explore our development finance services and bridging loan options to find the right fit for your property investment or development needs.
Related financial concepts:
Use development finance for construction projects where funds need to be released in stages against build progress. Use a bridging loan for property acquisitions, light refurbishments, and short-term holding. For many development projects, the optimal approach is to use both products in sequence — bridging for acquisition, development finance for construction, and then a commercial mortgage or sale for the permanent exit.
Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.
For longer construction projects, development finance is typically more cost-efficient because you only pay interest on drawn amounts. For short-term property purchases or light refurbishments, a bridging loan may be cheaper because of lower arrangement costs and simpler fees. The total cost depends on the project duration and how much you draw.
Yes, this is a common strategy. Developers often use a bridging loan to acquire a site quickly, then arrange development finance to fund the construction phase. The bridging loan is repaid from the development finance facility. A specialist finance broker can structure this transition smoothly.
Bridging loans are not designed for new build construction because they release a lump sum rather than staged drawdowns. For ground-up development, development finance is the appropriate product. However, a bridging loan could fund the land purchase while development finance is being arranged.
Gross development value (GDV) is the estimated market value of a development project once completed. Development finance lenders use GDV to determine how much they will lend — typically up to 70% of GDV. A higher GDV means you can borrow more, which is why accurate GDV assessment supported by comparable evidence is critical to your application.
Most development finance lenders require planning permission to be in place before releasing funds. Some will lend against permitted development rights without a formal planning application. Pre-planning finance is available from specialist lenders but typically at higher rates and lower LTV.
Common exit strategies for development finance include selling the completed units on the open market, refinancing onto a commercial mortgage or buy-to-let mortgage if retaining the property, or arranging development exit finance to bridge the sales period. Lenders need to see a realistic and achievable exit plan.
Bridging Loan vs Commercial Mortgage: Which Is Right for You?
Commercial vs Buy-to-Let Mortgage: Which Do You Need?
Fixed vs Variable Commercial Mortgage Rates: How to Choose