Bridging to Development Finance: Transitioning Between Loan Products

The journey from site acquisition to construction start rarely follows a straight line, and this is precisely why many developers use a bridging loan as the first step in their funding strategy. Bridging finance is designed for speed. It can be arranged in as little as 5 to 10 working days, making it ideal for securing a site at auction, beating a competing buyer, or closing on a time-sensitive opportunity before planning permission has been obtained. Development finance, by contrast, typically requires full planning consent, detailed contractor appointments, and a comprehensive appraisal, all of which takes time to assemble.

The classic scenario involves a developer who identifies a site with development potential but without planning permission. The vendor wants to exchange quickly, perhaps within 28 days. The developer uses a bridging loan to acquire the site for £800,000, then spends three to six months obtaining planning permission and preparing a development finance application. Once planning is granted, the site might be worth £1.2 million, and the developer refinances into a development facility that advances against this higher value, potentially repaying the bridging loan in full and releasing construction funding.

We arrange this type of two-stage funding structure regularly, and in our experience it is one of the most effective ways for developers to acquire sites in competitive markets. The key is planning the transition before you take the bridging loan, not after. Developers who enter a bridge without a clear path to development finance risk being trapped in expensive short-term borrowing when their bridge term expires. For a broader comparison of these two products, see our guide on development finance versus bridging loans.

The transition from bridging to development finance should be planned as a timeline with specific milestones, not treated as something you will figure out later. A typical bridging loan has a term of 6 to 12 months. If your planning application takes 8 to 13 weeks to be determined (the statutory period for minor applications), plus another 4 to 6 weeks to prepare a development finance application and achieve drawdown, you can see how a 6-month bridge term can feel very tight.

We recommend the following milestone framework for a standard bridging-to-development transition. Month one: complete site acquisition via bridging loan and submit planning application. Months two to four: planning determination period. Month four: if planning is granted, immediately instruct a development finance broker and begin preparing the application pack. Months five to six: development finance application, valuation, legal due diligence, and drawdown. This leaves approximately zero buffer, which is why we generally advise taking a 12-month bridge term rather than 6 months, even though it costs more in interest. The additional headroom for planning delays or lender processing times is worth the premium.

On a £1 million bridging loan at 0.85% per month, extending from 6 to 12 months costs approximately £51,000 in additional interest. That sounds significant, but a failed transition, where your bridge expires before your development facility is ready, could trigger default interest at 2-3% per month, enforcement fees, and potentially the loss of your site. In our experience, the insurance value of a longer bridge term almost always justifies the cost. We have seen developers lose sites worth over £2 million because they tried to save £30,000 on bridge interest by taking a shorter term.

When you refinance from a bridging loan into a development facility, the development lender effectively takes out the bridging lender. The mechanics work as follows: the development lender advances the land tranche of the new facility on day one, which is used to repay the bridging loan in full, including any accrued interest and exit fees. The development lender then registers their first charge over the property, replacing the bridging lender's charge. From this point, construction drawdowns proceed as normal under the development facility.

The amount the development lender will advance on day one depends on the current value of the site, not what you originally paid for it. This is where the planning uplift becomes critical. If you purchased a site for £800,000 on a bridge and it is now valued at £1.2 million with planning permission, the development lender will advance against the £1.2 million value. At 65% of site value, that is £780,000 on day one. If your bridging loan balance (including rolled-up interest and fees) is £870,000, you will need to find £90,000 from your own resources to bridge the gap. This shortfall calculation should be modelled before you take the initial bridging loan, not at the point of refinancing.

We always advise developers to obtain an indicative development finance term sheet before committing to a bridging loan. This gives you visibility on the likely day-one advance from the development lender and allows you to calculate any equity shortfall with confidence. Several of the development lenders on our panel will issue indicative terms based on pre-planning information, provided the planning application has been submitted. This approach reduces the risk of discovering a funding gap at the worst possible moment. To explore your options, submit your project details through our deal room.

The total cost of a bridging-to-development strategy includes the bridging loan costs, the development finance costs, and the overlap and transition costs between the two. Understanding all three components is essential for accurate development appraisal modelling.

Bridging loan costs typically include: interest at 0.65% to 1.2% per month (7.8% to 14.4% per annum), an arrangement fee of 1-2% of the loan, valuation fees of £1,500 to £5,000 depending on site complexity, legal fees for both borrower and lender solicitors (budget £3,000 to £8,000 total), and an exit fee of 0 to 1% depending on the lender. On a £1 million bridging loan held for 9 months at 0.85% per month with a 1.5% arrangement fee and 1% exit fee, the total cost is approximately £101,500.

The transition itself incurs costs that many developers overlook. The development lender will require a new valuation (£3,000 to £8,000), new legal due diligence (£5,000 to £15,000), and will charge their own arrangement fee on the full facility. If the development facility is £2.5 million with a 1.5% arrangement fee, that is another £37,500. Critically, both sets of legal fees must be paid even though you are using the same property as security. Some lenders will accept the bridging lender's valuation if it was conducted recently by an approved firm, but this is not guaranteed.

In total, a developer using a £1 million bridge followed by a £2.5 million development finance facility might spend £150,000 to £180,000 in combined finance costs before a single brick is laid. This must be factored into your development appraisal as a cost of the capital structure, not treated as an unexpected expense. We model these costs in detail for every client and ensure that the blended cost of the bridging-to-development strategy does not erode the scheme's target profit margin below acceptable levels.

The most dangerous pitfall in a bridging-to-development transition is planning refusal. If your planning application is refused, your bridging loan continues to accrue interest while you appeal or resubmit, and you have no clear path to development finance. To mitigate this risk, we advise developers to obtain pre-application planning advice before acquiring a site on a bridge. A positive pre-application response does not guarantee consent, but it significantly reduces the risk of outright refusal and gives the bridging lender comfort that your exit strategy is credible.

Another common mistake is failing to account for the bridging lender's exit fee when calculating the refinance amount needed from the development lender. Exit fees are often calculated on the gross loan amount, not the drawn balance, and can add £10,000 to £20,000 to the redemption figure. If you have modelled your transition on the drawn balance alone, you may find yourself short at the point of refinance. Always request a full redemption statement from your bridging lender at least two weeks before the planned refinance date.

Finally, some developers attempt to start construction works while still on a bridging loan, intending to refinance into a development facility partway through the build. This is extremely risky. Most bridging lenders prohibit structural works without their consent, and beginning construction without a development facility in place means you are funding works from your own cash with no certainty that the development lender will advance against partially completed work. We have seen projects where the development lender's valuer assessed the partially completed scheme at less than the cost incurred, creating a negative equity position that made refinancing impossible. Always complete the transition to development finance before starting significant construction works.

Not every site acquisition requires a bridging-to-development transition. If the site already has full planning permission and your development finance application is ready to submit, going directly to a development facility saves time and money. The development lender can advance the land tranche on day one to complete the purchase, and construction drawdowns follow as the build progresses. This single-facility approach eliminates the bridging loan costs entirely and is the optimal structure whenever timing allows.

Similarly, some lenders now offer hybrid products that combine bridging and development finance in a single facility. These products advance a fast initial tranche for site acquisition (essentially a bridge) and then convert into a phased development facility once planning is confirmed. The advantage is a single set of legal costs, a single valuation, and a seamless transition. The disadvantage is that these hybrid products are typically more expensive than standalone bridging or development finance on a like-for-like basis, reflecting the additional flexibility they provide.

We evaluate every site acquisition opportunity on its merits and recommend the most cost-effective approach. For some clients, the speed and certainty of a bridge outweigh the additional cost. For others, a slightly longer acquisition timeline using direct development finance is the better economic outcome. There is no one-size-fits-all answer, which is why structuring advice from an experienced broker is invaluable. Our complete guide to development finance provides additional context on how standalone facilities operate.