Bridging loans and development finance are both short-term property funding tools — but they serve very different purposes, carry different costs, and are assessed by lenders in completely different ways. Choosing the wrong product can cost you thousands in extra fees, delay your project, or result in a declined application. This guide explains exactly when to use each product, how they're structured, and what lenders want to see.
A bridging loan gives you a single lump sum upfront and is designed for speed — buying, refinancing, or light refurbishment. Development finance releases money in stages as construction progresses and is built for projects where significant building work is involved.
Both are short-term. Both are repaid from an exit event (sale or refinance). But the structure, assessment, costs, and lender panel for each product are fundamentally different.
| Feature | Bridging Loan | Development Finance |
|---|---|---|
| Primary purpose | Purchase, refinance, chain break, light refurb | Ground-up build, conversion, heavy refurb |
| How funds are drawn | Single lump sum on day one | In stages (tranches) as build progresses |
| Assessed against | Current open market value (OMV) | Gross Development Value (GDV) of completed scheme |
| Typical max LTV | Up to 75% of current value | Up to 65–70% of GDV (LTGDV) |
| Also capped at | — | 85–90% of total project costs |
| Typical term | 3–18 months | 12–36 months |
| Monthly interest rate | 0.75% – 1.25% | 0.85% – 1.40% |
| Arrangement fee | 1.5% – 2.0% | 1.5% – 2.5% |
| Monitoring surveyor | Not required | Required at each drawdown |
| Planning required | No (for residential purchase) | Usually yes for ground-up or change of use |
| Speed of arrangement | 5–14 working days | 3–8 weeks |
| Profit requirement | N/A | Typically 20%+ profit on GDV required |
Bridging finance is the right product when speed is the priority and no significant construction work is involved. The lender lends against what the property is worth today — not what it might be worth after development.
💡 Rule of thumb: if you're not building walls, adding extensions, or changing the use class of a property — a bridging loan is almost always the simpler, faster, and cheaper option.
Development finance is designed for projects where funding is needed in stages as construction work is completed and independently verified. The lender's exposure increases incrementally as the build progresses and value is created — which is why staged drawdowns are central to how the product works.
The staged drawdown structure is a significant advantage for larger projects — you only pay interest on funds you've actually received. On a £1 million development facility, you might draw £300,000 on day one (for land acquisition), then further tranches as foundations, superstructure, and fit-out are completed. This can substantially reduce the total interest cost compared to borrowing the full amount upfront.
Gross Development Value (GDV) is the projected open market value of the completed development — what the finished scheme would sell or be valued at once all works are complete. It's assessed by an independent RICS surveyor and forms the basis for how much a development lender will advance.
Most development finance lenders cap their lending at 65–70% of GDV — known as the Loan to GDV (LTGDV) ratio. This means:
| Completed GDV | Max loan at 65% LTGDV | Max loan at 70% LTGDV |
|---|---|---|
| £500,000 | £325,000 | £350,000 |
| £1,000,000 | £650,000 | £700,000 |
| £2,000,000 | £1,300,000 | £1,400,000 |
| £5,000,000 | £3,250,000 | £3,500,000 |
The LTGDV limit exists to ensure a meaningful equity cushion — the developer has skin in the game and the lender is protected if the development takes longer or costs more than planned. Lenders also assess profit on GDV — most require a minimum 20% profit margin on the completed scheme before they'll lend. A project with a thin margin is seen as high risk regardless of the GDV.
💡 Two limits always apply simultaneously on development finance: the LTGDV cap AND the loan-to-cost cap (typically 85–90% of total costs). Whichever is lower determines your maximum facility. Always model both before approaching a lender.
Development finance carries slightly higher headline rates than bridging loans — but the comparison isn't straightforward because of how interest is charged.
You borrow £500,000 on a bridging loan at 0.95% per month for 9 months. Interest is rolled up. Total interest: £500,000 × 0.95% × 9 = £42,750. Plus arrangement fee of 1.75% = £8,750. Total financing cost: approximately £51,500.
You have a £800,000 development facility at 1.10% per month. You draw £200,000 on day one, then further tranches across 12 months averaging £500,000 drawn. Interest on average drawn balance: £500,000 × 1.10% × 12 = £66,000. Arrangement fee 2.0% on £800,000 = £16,000. Monitoring surveyor: £3,000. Total: approximately £85,000 — but on a much larger facility funding a significantly bigger project.
The key point: comparing headline rates is misleading. The total cost depends entirely on how much is drawn, for how long, and whether the project runs to schedule.
Development finance always involves a monitoring surveyor — an independent RICS-qualified surveyor appointed by the lender who visits the site before each tranche is released to verify that work has been completed to the required standard and cost. This is a cost borne by the borrower (typically £500–£1,500 per visit) and is a non-negotiable part of the development finance process.
The monitoring surveyor also reviews the initial appraisal, assesses the build cost schedule, and provides an ongoing report to the lender throughout the project. Experienced developers build this into their cost schedule from the outset.
Yes — and this is a common strategy. Many developers use a bridging loan to acquire the site quickly (particularly at auction or in a competitive off-market situation), then refinance onto development finance once planning permission is secured or the development appraisal is formalised.
This approach gives you speed at acquisition while allowing time to structure the development facility properly. The bridging loan is secured against the current site value; the development finance replaces it and funds the build. Your broker needs to have both products in mind from the outset to structure this correctly.
The honest answer is: it depends entirely on your project. We assess every enquiry individually and won't push you into a development facility if bridging is cheaper and simpler for your situation — or vice versa.
The questions we ask are:
Tell us about your project and we'll tell you exactly which product fits, what you can borrow, and what it'll cost. No obligation, same-day feedback on qualifying deals.
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