Development Finance vs Bridging Loans: Which Do You Need?
Two of the most common short-term property finance products, but they serve fundamentally different purposes. We break down when each is the right choice.
Option A
Development Finance
A structured facility designed for ground-up construction or major refurbishment, with funds released in staged drawdowns against build progress verified by a monitoring surveyor.
- Rate
- 6.5-10% p.a.
- Leverage
- 60-70% LTGDV
- Term
- 12-24 months
Advantages
- Staged drawdowns match actual build expenditure
- Higher leverage against completed value (GDV)
- Purpose-built for construction projects with monitoring
- Interest only charged on drawn funds, reducing overall cost
Disadvantages
- Requires detailed planning permission and build costs
- Monitoring surveyor adds cost and time to drawdowns
- Longer application process with more documentation
- Not suitable for quick acquisitions or chain breaks
Best for
Ground-up developments, major conversions, and heavy refurbishment projects where construction works form the majority of the cost
Option B
Bridging Loan
A short-term secured loan providing rapid access to capital, typically for acquisition or light refurbishment, with the full facility available from day one.
- Rate
- 0.55-1.0% per month
- Leverage
- 70-80% LTV
- Term
- 1-18 months
Advantages
- Speed - completion in as little as 5-10 working days
- Full facility available from day one
- Flexible use - acquisitions, chain breaks, auction purchases
- Less documentation required than development finance
Disadvantages
- Interest on the full facility from day one
- Lower leverage against purchase price than development finance against GDV
- Not designed for major construction projects
- Monthly interest rates can be expensive over longer terms
Best for
Quick acquisitions, auction purchases, chain breaks, pre-planning site purchases, and light refurbishment projects
Side by side
Feature-by-feature
comparison.
| Feature | Development Finance | Bridging Loan |
|---|---|---|
| Speed to Completion | 2-4 weeks | 5-10 days |
| Funds Released | Staged drawdowns | Full amount from day one |
| Interest Charged On | Drawn balance only | Full facility |
| Monitoring Required | Yes - surveyor at each drawdown | No |
| Planning Permission | Required (usually full permission) | Not required |
| Typical Use | New builds, major refurbs, conversions | Acquisitions, light refurbs, chain breaks |
| Exit Strategy | Sale or refinance of completed units | Sale, refinance, or development finance |
| Valuation Basis | GDV (completed value) | Current market value |
Our verdict
Which should
you choose?
The choice between development finance and bridging is determined by what you are doing with the property. If your project involves significant construction works - ground-up building, structural alterations, or changes requiring building regulations approval - you need development finance. The staged drawdown structure matches how construction projects spend money, and the GDV-based leverage gives you more borrowing capacity.
If you need to move quickly on an acquisition, break a chain, or fund a light cosmetic refurbishment, a bridging loan is the right tool. Many developers use both products in sequence: a bridge to acquire a site quickly, then refinance into development finance once planning permission is secured. We regularly structure these bridge-to-development transitions for our clients.
The most common mistake we see is developers trying to use a bridging loan for a project that requires development finance. This typically results in higher overall costs, insufficient funds for the build, and a stressful scramble to refinance mid-project.
Further reading
Go deeper
on the detail.
Common questions
Frequently asked
questions.
Can I use a bridging loan for a property development?
You can use a bridging loan for light refurbishment (cosmetic works not requiring building regulations approval), but for ground-up development, major conversions, or heavy refurbishment, you need development finance. The key test is whether the works require a monitoring surveyor and staged drawdowns.
Is development finance more expensive than a bridging loan?
Development finance headline rates (6.5-10% p.a.) appear lower than bridging rates (0.55-1.0% per month, equivalent to 6.6-12% p.a.), but the total cost depends on how much you draw and when. Because development finance only charges interest on drawn funds, the effective cost can be significantly lower than a bridge where interest accrues on the full facility from day one.
Can I switch from a bridging loan to development finance?
Yes - this is a common strategy called bridge-to-development. You use a bridging loan to acquire the site quickly (often at auction or in a competitive process), then refinance into a development finance facility once planning permission is secured. We structure these transitions regularly and can arrange both facilities from our lending panel.
Ready when you are
Not sure which
product you need?
Tell us about your scheme and we'll recommend the right finance structure. Indicative terms from the panel within one working day.