5 min read · By Matt Lenzie · Updated September 2026
Bridging Loan vs Development Finance: Total Cost Worked Example
A worked example of one scheme funded two ways. We compare interest, arrangement fees, monitoring costs and exit fees to show why staged drawdowns usually make development finance cheaper for a build.
The fundamental difference
For the same build, development finance usually costs less than a bridging loan because interest is charged only on funds as they are drawn. In the illustrative £1M example below, the bridge costs about £105,000 in total against about £88,000 for development finance, even though development finance carries more fees.
If you want a side-by-side comparison of features, see our development finance vs bridging loans comparison. If you need to buy a site quickly before a build facility is possible, see when a bridge comes first and how to refinance onto development finance. This page focuses on the numbers.
Development finance funds construction - it's designed for projects where you're building something new or substantially altering an existing structure. Bridging loans fund acquisitions - they're designed for purchasing property quickly, usually with an exit strategy to refinance or sell.
This matters because the loan mechanics are completely different. Development finance involves phased drawdowns aligned to a build programme, with an independent monitoring surveyor overseeing progress. Bridging loans are typically advanced as a single lump sum on completion of the purchase.
If your project involves significant building works (ground-up development, structural conversions, major refurbishment), you need development finance. If you're buying a property that needs little or no work - or light cosmetic refurbishment - a bridging loan is appropriate.
Expert Insight
With access to over 100 lenders on our panel, we help developers compare the full range of property finance products. The right product depends on your project type, timeline, and exit strategy — and making the wrong choice can cost tens of thousands in unnecessary interest.
Cost comparison
On a headline basis, bridging loans appear more expensive. Monthly rates of 0.55-1.0% equate to 6.6-12% annualised - broadly similar to development finance. But the total cost equation is different because of how interest accrues.
With development finance, you only pay interest on funds drawn. If your total facility is £2M but you've only drawn £500K in month one, you pay interest on £500K. By month six you might have drawn £1.2M. This phased accrual means the actual interest cost is significantly lower than if you'd borrowed the full amount from day one.
With a bridging loan, you borrow the full amount upfront and pay interest from day one on the entire balance. For a 12-month £1M bridge at 0.75% monthly, total interest is £90,000. A £1M development finance facility drawn over 12 months with an average balance of £650,000 at 8% annual costs approximately £52,000 in interest.
However, development finance has higher arrangement fees (typically 1.5-2% vs 1-1.5% for bridging) and the cost of monitoring surveyor visits (£500-£1,500 each). Factor in all costs when comparing.
Worked example (illustrative)
A £1M facility over 12 months. Bridge: interest £1,000,000 × 0.75% × 12 = £90,000, plus a 1.5% arrangement fee of £15,000 and no exit fee, total £105,000. Development finance: interest on an average drawn balance of £650,000 at 8% = £52,000, plus a 2% arrangement fee of £20,000, six monitoring visits at £1,000 = £6,000 and a 1% exit fee of £10,000, total £88,000. The development facility is about £17,000 cheaper despite higher fees, because interest runs only on the drawn balance. Figures are illustrative, not offers.
| Cost line (£1M, 12 months) | Bridging loan | Development finance |
|---|---|---|
| Interest | £90,000 (0.75% p.m. on full balance) | £52,000 (8% p.a. on £650,000 average) |
| Arrangement fee | £15,000 (1.5%) | £20,000 (2%) |
| Monitoring surveyor | None | £6,000 |
| Exit fee | None assumed | £10,000 (1%) |
| Total | £105,000 | £88,000 |
The gap widens on longer builds and on schemes where most of the spend falls late in the programme, because the average drawn balance falls further below the full facility. You can model your own numbers with our development finance calculator and bridging loan calculator.
| Feature | Development Finance | Bridging Loan |
|---|---|---|
| Rate | From 6.5% p.a. | From 0.55% p.m. |
| LTV | 65-70% LTGDV | Up to 75% LTV |
| Term | 12-24 months | 1-18 months |
| Drawdown | Staged milestones | Single advance |
| Speed to funds | 4-8 weeks | 5-10 days |
Speed of completion
Bridging loans are faster. Specialist bridging lenders can complete in 5-14 days, with some offering same-day completion for repeat borrowers. This speed makes bridging essential for auction purchases (28-day completion deadline) and competitive acquisitions.
Development finance takes longer - typically 3-6 weeks from application to first drawdown. The lender needs to instruct a valuation, review your build costs and programme, appoint a monitoring surveyor, and complete legal due diligence. This timeline is appropriate because the lender is committing to a multi-month facility with ongoing drawdowns.
If you need to secure a site quickly but plan to develop it, a common strategy is to use a bridging loan for the acquisition, then refinance into a development finance facility once planning and pre-construction work is complete. The bridging loan buys you time; the development finance funds the build.
When to use each product
Use development finance when: you're building new homes, converting commercial to residential, carrying out heavy structural refurbishment, or any project with a build programme exceeding 3 months and significant construction costs.
Use a bridging loan when: you're buying at auction, securing a site ahead of planning, purchasing below market value for quick resale, funding a gap between selling one property and buying another, or carrying out light refurbishment (cosmetic upgrades, new kitchen/bathroom, redecoration).
Use both when: you need to acquire a site quickly (bridge for the purchase) and then develop it (development finance for the build). This two-stage approach is common and many brokers will arrange both facilities simultaneously with different lenders.
For developers exploring other funding options, we also arrange development exit finance and commercial mortgages. You may also find these guides useful: Quantity Surveyor Costs in Development, Commercial Mortgage Guide UK, How to Calculate GDV. UK property finance operates within frameworks set by the Financial Conduct Authority (FCA), the Royal Institution of Chartered Surveyors (RICS), and HM Land Registry. Developers should account for HMRC Stamp Duty Land Tax (SDLT), Building Regulations compliance, and any Section 106 or Community Infrastructure Levy (CIL) obligations in their project planning.
Live market data
Regional
market evidence.
Aggregated from 59 towns across 2 counties relevant to this guide.
Median Price
£525,000
Transactions (12m)
171,843
Avg YoY Change
-2%
New Build Premium
+31.3%
Pipeline Units
91,787
Pipeline GDV
£39.9B
Median Price by Property Type
Detached
£1.2M
Semi-Detached
£747,250
Terraced
£658,750
Flat / Apartment
£390,000
Most Active Markets
| Town | Median Price | Sales (12m) | YoY |
|---|---|---|---|
| Leeds | £237,500 | 11,854 | +1.1% |
| Battersea | £640,000 | 5,019 | +2.4% |
| Wandsworth | £640,000 | 5,019 | +2.4% |
| Croydon | £415,000 | 4,666 | +2.5% |
| Highgate | £620,000 | 4,659 | -1.6% |
Development Pipeline
Approved
6,850
Pending
4,497
Approval Rate
65%
Total Est. GDV
£39.9B
Continue reading
More
expert guides.
Bridge First, Then Development Finance: When Bridging Comes First
6 min readProperty Development Loans: How Development Finance Works
19 min readThe True Cost of Development Finance: A Complete Fee Breakdown
10 min readUK Bridging Loan Rates and Costs: Rates by LTV, Every Fee and the Total Cost
17 min readUsing a Bridging Loan to Buy at Auction: A Step-by-Step Guide
4 min readCommon questions
Frequently asked
questions.
What types of property finance does Construction Capital arrange?
We arrange the full spectrum of property finance: development finance for ground-up builds and conversions, bridging loans for acquisitions and short-term needs, mezzanine finance to stretch leverage, equity and joint ventures, refurbishment finance, commercial mortgages, and development exit finance. Our panel includes over 100 lenders.
How much does it cost to use a property finance broker?
Broker fees for development finance are typically 1% of the facility, payable on successful completion. Some brokers charge an upfront fee, but we believe fees should only be payable on success. Our fee is transparent and agreed at the outset. Compare the fee with the difference in rates and terms a broker can access across the market before deciding.
How quickly can property finance be arranged?
Timescales vary by product: bridging loans can complete in 5-10 working days, refurbishment finance in 2-3 weeks, development finance in 2-8 weeks depending on complexity and borrower experience. Having all documentation prepared before submission is the single most effective way to accelerate the process.
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