Bridging loan for property development

Not a purchase you'll live in. A scheme you'll construct, refurbish or convert, then sell or refinance for a profit.

It's short-term, staged, and priced for the risk the lender is taking on an asset that doesn't fully exist yet. Used well, it turns a plot and a plan into finished units. Used carelessly, it becomes an expensive way to stall a project you can't exit.

This page explains how it works, what it costs, and what lenders actually want to see before they release a penny.

What development finance actually is

Development finance is funding for the construction, conversion or heavy refurbishment of residential, commercial and mixed-use property.

It differs from almost every other property loan in one way: the development loan comes out in stages, not all at once.

You draw funds against the build programme. A monitoring surveyor signs off completed work. The next tranche follows. You pay interest only on what you've actually drawn, not on the full facility sitting in the background.

That structure keeps your costs down while the site is quiet and scales them up as the build accelerates. It's the reason development finance exists as its own product rather than a large lump-sum loan.

What you can build with it

Loans for property development cover a wide range of schemes. Most development finance lenders will consider:

• Ground-up new build: Houses, flats and apartment blocks on cleared or vacant land
• Conversions: Offices, barns, pubs or a single large house split into multiple units
• Permitted development: Commercial-to-residential changes of use
• Heavy refurbishment: Structural works well beyond a cosmetic refresh
• Mixed-use: Retail or commercial at ground level, residential above
• Specialist residential: Student accommodation, build-to-rent, senior living and care homes

The common thread is that value is being created. The lender isn't backing what the site is worth today. It's backing what it will be worth once you've finished.

How lenders size the loan: LTC, GDV and LTGDV

Two numbers decide how much you can borrow. Both use jargon. Both are simple once explained.

Loan to Cost (LTC) is the loan set against the total cost of the project, land plus build plus fees. Across the market, senior lenders typically go up to around 70-85% of cost. You fund the rest from your own equity.

Gross Development Value (GDV) is what the finished scheme is worth once every unit is built and sold. It's the figure your whole deal turns on.

Loan to GDV (LTGDV) caps the loan as a percentage of that end value, commonly around 65% for new build and up to 70% for refurbishment.

A lender applies both caps and lends to whichever comes out lower.

Here's why that matters. If your costs are lean but your end values are strong, the GDV cap governs. If your margins are tight, the cost cap bites first. Knowing which one limits your deal tells you exactly how much cash you need to bring.

Stretch senior and mezzanine: closing the equity gap

Sometimes the senior loan leaves a gap you can't cover with your own funds. Two products fill it.

Stretch senior pushes a single facility higher up the cost stack, often to around 85% of costs, with rolled-up interest taking the total exposure higher still. One lender, one loan, one charge.

Mezzanine sits behind the senior debt as a second layer, taking a second charge and a higher rate to reflect the higher risk.

Both let you do more with less cash in. Both cost more. And both cut your margin, which means a scheme that looked comfortable on paper can turn marginal once the finance is fully geared.

More leverage is not free leverage. The question is not whether you can stretch. It's whether the deal still stands up when you do.

Development bridging loans: a related but different tool

A development bridging loan is not the same as a full development facility, and treating them as interchangeable causes real problems.

Bridging loan for property development is short-term funding used around a build rather than through it. The three common uses:

• Site acquisition: Buying the plot quickly, often at auction, before your main facility is in place
• Early-stage costs: Securing a site while planning is progressed
• Development exit: Refinancing a completed scheme onto cheaper short-term money while you sell the last units

Development bridging loans are priced monthly and secured against the asset, much like standard bridging. The recent market average sits around 0.8% per month, but that's an average across all bridging, and your rate depends on leverage, asset and experience.

One honest word on speed. Some lenders advertise a development bridging loan completed in days. For anything involving a site valuation and a quantity surveyor's report, that is rarely realistic. Three to six weeks is the standard timeline. Treat "completes in hours" as marketing, not planning.

What development finance costs

Development finance is not expensive by accident. You're paying for money released in stages against an asset that carries build risk. The costs are predictable if you know where to look.

Interest. Usually charged monthly on drawn funds and often rolled up, added to the loan rather than paid each month, so you're not servicing debt before the units sell. It compounds, so the longer the build runs, the more it eats into your margin.

Arrangement fee. Typically 1-2% of the facility, taken at the outset.

Exit fee. Charged by some lenders on redemption, often around 1-2% and sometimes calculated on GDV rather than the loan, always check which.

Professional costs. Valuation, legal fees, and the monitoring surveyor who inspects the site and signs off each drawdown. These are yours to pay.

Broker fee, where you use one to place the deal.

For context, the Bank of England held Bank Rate at 3.75% through mid-2026, but development pricing tracks a lender's own funding costs and risk appetite far more than any headline rate. Model your full cost over the real build period. A rate quoted per month has a way of looking very different across an eighteen-month scheme.

Timeline for the loan

Indicative terms are quick. Completion is not instant.

Most lenders will give you heads of terms within 24 to 48 hours of seeing your numbers. That's a genuine strength of the market and worth using early.

Getting to drawdown is slower. Valuation, quantity surveyor due diligence and legal work all sit between offer and first funds. Realistically, that's several weeks, not days, and complex sites take longer.

Build that lead time into your programme. The developers who get caught out are the ones who assumed the money would move as fast as the auction gavel.

Your exit is the whole deal

Every bridging loan for property development is written to be repaid, and how you repay it is called your exit.

There are two routes. Sell the finished units and clear the loan from the proceeds. Or refinance onto a longer-term facility, a commercial mortgage or buy-to-let mortgage, and repay over time.

Your exit is not the last thing to think about. It's the first.

A lender assessing finance for property development will interrogate your exit before your build. If the market softens and sales slow, a weak exit is what turns a good scheme into a distressed one. This is exactly where development exit finance earns its place, buying you time to sell without the pressure of your original facility running down.

Know your exit before you draw. If you can't explain it in a sentence, you're not ready to borrow.

Who lenders will actually back

Development finance lenders are selective, and rightly so. Most want to see:

• Relevant experience: A track record of delivering comparable schemes
• Planning: Permission in place, or a credible, well-progressed application
• Meaningful equity: Real cash in the deal, usually covering the cost the senior loan won't
• A viable GDV: End values a valuer will actually stand behind
• A clear exit: A realistic sale or refinance plan, evidenced
• A capable team: A builder and professionals who can deliver on programme

First-time developers aren't automatically shut out. But expect closer scrutiny, lower leverage and a lender that leans harder on your professional team.

The risks, stated plainly

Development finance rewards developers who plan for what goes wrong, not just what goes right.

• Cost overruns. Build costs rise. If your contingency is thin, you fund the gap yourself.
• Delays. Rolled-up interest keeps accruing whether or not the site is moving.
• A soft market. If values slip or sales stall, your exit weakens and your margin shrinks.
• Refinance risk. If you're relying on refinancing to exit, that facility has to be available when you need it.
• Your security is at risk. The property and any assets secured against the loan can be lost if you don't repay.

None of this means development finance is dangerous. It means it demands respect. The developers who lose money are almost always the ones who ran no contingency and had no plan B.

How to apply

The process is well-trodden across the market:

• Enquiry. Share the site, the scheme, your costs and your projected GDV.
• Heads of terms. The lender issues indicative terms, usually within a day or two.
• Application and credit search. You submit full details and supporting documents.
• Due diligence. Valuation, quantity surveyor report and legal work are instructed.
• Formal offer. Terms are confirmed and the facility is agreed.
• Day-one funds and drawdowns. Initial funds release, then further tranches in arrears as certified work completes.
• Exit. You repay from unit sales or by refinancing.

Frequently asked questions