Guide
Bridging Finance vs Development Finance:
What’s the Difference?
Two distinct products for different stages of a property project. Here’s how they work, what they cost, and when you need which.
Side-by-Side Comparison
Bridging finance and development finance are both short-term, secured lending products used in property. But they are structured differently, priced differently, and designed for different situations. If you are weighing up the options for a scheme, start with our bridging loans for property developers. Here is the headline comparison:
| Bridging Finance | Development Finance | |
|---|---|---|
| Purpose | Acquire, hold, or refinance property | Fund ground-up or major construction |
| Speed | 5–7 working days typical | 4–8 weeks typical |
| Term | Most commonly 12 to 24 months; some lenders go to 36 months | 6–36 months |
| Drawdown | Full amount on day one | Staged, released against build progress |
| Interest rate | 0.50%–1.5% a month | 0.6%–1.2% a month (on drawn balance) |
| Max LTV | Typically up to 75%. A few lenders will go higher with additional security. | Up to 70% GDV / 90% of build costs |
| Monitoring | Minimal, with no ongoing oversight | Quantity surveyor inspections at each stage |
| Typical exit | Sale or refinance | Sale of units or development exit bridge |
When to Use Bridging Finance
Bridging is the right product when you need capital quickly, the property already exists, and the works involved are cosmetic or moderate. Think acquisition, light refurbishment, and repositioning rather than construction:
Fast acquisition
Auction purchases, investor chain breaks, or any deal where the seller needs completion in days rather than months. Bridging funds are released in full on completion, with no staged drawdowns or waiting for QS inspections.
Light to medium refurbishment
New kitchen, bathroom, redecoration, landscaping, or anything that does not require planning permission or structural works. The kind of project you can manage with your own contractor and fund from your own cash alongside the bridge.
Unmortgageable properties
Properties in poor condition, short leases, non-standard construction, or anything a mortgage lender will not touch in its current state. Bridge in, fix the issue, then refinance once the property meets standard lending criteria.
Short-term hold before sale
Buying to refurbish and sell within 6–12 months. No point taking a 25-year mortgage with early repayment charges for a 6-month project. Bridging is more efficient even though the monthly rate is higher.
Releasing equity quickly
If you own property outright or have significant equity, a bridge can release capital in days for a time-sensitive opportunity: a deposit on another deal, a business need, or a short-term cash flow gap.
When to Use Development Finance
Development finance is the right product when significant construction is involved: new builds, conversions or major structural works. The key difference is that funds are released in stages as the build progresses:
Ground-up new builds
Building new residential units, houses, or commercial premises from the ground up. The lender funds the land purchase and then releases construction finance in tranches as each build stage completes.
Major conversions
Converting a commercial building into flats, a barn into houses, or any project that fundamentally changes the use or layout of the property. These projects need planning permission, building regulations sign-off, and professional project management.
Structural works and extensions
Adding floors, removing load-bearing walls, underpinning foundations, or any works requiring a structural engineer and building control. The scale and complexity justify the staged monitoring that development finance provides.
Multi-unit schemes
Any project creating multiple sellable units, whether from a single house, a block of flats, or a cleared site. Lenders assess these on Gross Development Value (GDV) and will fund up to 70% of the projected end value.
Case study: a development finance facility in Leeds.
The Overlap: Heavy Refurbishment
There is a grey area between the two products. Heavy refurbishment (projects that need planning permission or structural works but fall short of a full development) can sit under either product depending on the lender and the scope of work.
Might use a bridging loan
- • Single property, one end unit
- • Works under £150k
- • You can fund the refurb from cash
- • No change of use or new units created
- • Completion within 6–9 months
Probably needs development finance
- • Multiple units being created
- • Works over £150k
- • You need the lender to fund the build
- • Change of use or planning required
- • Project timeline 12+ months
The deciding factor is usually whether you need the lender to fund the construction costs. If you can cover the works from your own resources and just need the acquisition finance, a bridge is simpler, faster, and involves less oversight. If you need the lender to release funds as the build progresses, development finance is the correct structure.
Can You Use Both on the Same Project?
Yes, and it is more common than you might think. Here are two scenarios where bridging and development finance work together:
1
Bridge to secure, then switch to dev finance
You spot a site at auction or through an off-market deal. You need to complete in 14 days but your development finance will take 6 weeks to arrange. A short-term bridge secures the site immediately. Once the development facility is in place, the bridge is repaid from the initial drawdown of the dev finance. Total bridging cost: perhaps 2–3 months of interest on the land value.
2
Development exit bridge to release capital
Your development is complete but the units have not all sold yet. Your development lender wants repaying. A development exit bridge repays the dev finance at a lower rate, removes the sales pressure, and gives you time to sell at the right price rather than accepting a discount for speed. Terms are most commonly 12 to 24 months; some lenders go to 36 months.
The Real Cost Comparison
The headline interest rates look similar, but the total cost of each product is structured very differently. Development finance charges interest only on drawn funds, but adds monitoring and professional fees that bridging does not require:
| Cost element | Bridging | Development |
|---|---|---|
| Interest rate | 0.50%–1.5% a month | 0.6%–1.2% a month |
| Interest charged on | Full loan from day one | Only the drawn balance |
| Arrangement fee | 1%–2% of loan | 1%–2% of total facility |
| Valuation | Nil to about £2,000 + VAT | £500–£3,000+ |
| Monitoring surveyor | Not required | £500–£1,000 per inspection |
| Legal fees | About £1,500–£2,000 + VAT for each side | £3,000–£10,000+ |
| Broker fee | Generally 1% of the gross loan, paid on completion | 1%–1.5% typical |
On a loan of about £200k: desktop valuation nil to about £100, full valuation up to about £2,000, both plus VAT, legal about £1,500–£2,000 plus VAT for each side. More on larger or complex loans.
Development finance has higher upfront costs. The valuation is more complex (it must assess the completed GDV), legal work is more involved (facility agreements, drawdown conditions, step-in rights), and the monitoring surveyor adds cost at each stage. However, for a genuine development project, these costs are justified because the facility funds the actual construction. Trying to use a bridge for a ground-up build would mean finding all the construction costs from your own pocket.
For smaller projects where you can self-fund the works, bridging is usually cheaper overall despite the higher interest rate, simply because the fee structure is simpler and the term is shorter. Model your bridging costs using our bridging calculator.
We Handle Both Sides
bridging.fund specialises in bridging finance: fast acquisition, refurbishment, refinance and development exit loans. For development finance (ground-up builds, conversions, and major construction projects), our sister company developing.fund provides the same deal structuring expertise with access to specialist development lenders.
Many of our clients use both companies across the lifecycle of a project: bridging to acquire the site, development finance for the build, and a development exit bridge to manage the sales period. Our development exit finance guide covers that last stage in detail. One point of contact, one consistent view of your deal, and the right product at each stage.
Not sure which product fits your project?
A quick call usually settles it. Tell us the site and the scheme, and we will say which product fits and roughly what it costs.
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