What is the difference between bridging and development finance?
Bridging finance and development finance are both forms of short-term secured property lending, but they serve fundamentally different purposes. Confusing the two — or using the wrong product — can result in higher costs, compliance issues, or a lender refusing to fund part-way through a project.
Bridging finance is a short-term loan (typically 3–18 months) secured against property, used to "bridge" a gap — for example, purchasing a property quickly before selling another, or acquiring a property at auction that requires a 28-day completion. The full loan is advanced on day one as a single lump sum.
Development finance is a short-term facility (typically 12–24 months) specifically designed for construction or heavy refurbishment projects. Funds are drawn down in stages as the build progresses, subject to monitoring surveyor certification. The loan is structured around the build programme.
Key structural differences
- Drawdown method — Bridging: full advance on day one. Development finance: staged drawdowns linked to build milestones.
- Monitoring — Bridging: no ongoing monitoring. Development finance: monitoring surveyor visits at each drawdown stage.
- Loan-to-value basis — Bridging: LTV based on current market value (typically up to 75%). Development finance: LTV based on gross development value (LTGDV, typically 60–70%) and loan-to-cost (LTC, typically 75–90%).
- Term — Bridging: 3–18 months. Development finance: 12–24 months, aligned to the build programme plus a sales period.
- Interest calculation — Bridging: interest accrues on the full balance from day one. Development finance: interest accrues only on the drawn balance, increasing as each tranche is drawn.
- Exit strategy — Bridging: sale or refinance of the existing asset. Development finance: sale of completed units or refinance onto a term facility.
When to use bridging finance
Bridging finance is appropriate when:
- You are purchasing a property that requires no works or only light cosmetic refurbishment.
- You need to complete a purchase quickly (e.g., auction, chain-break, or time-sensitive opportunity).
- You are acquiring a property to hold and refinance onto a buy-to-let mortgage or commercial mortgage.
- The property is habitable in its current state and does not require building regulations approval for the intended works.
When to use development finance
Development finance is the right product when:
- The project involves ground-up new-build construction.
- The works are structural — extensions, conversions, demolition and rebuild.
- Building regulations approval is required.
- The project duration exceeds 6 months.
- The works materially change the property's use, layout, or value.
- A contractor is being appointed and a formal build programme exists.
Cost comparison: which is actually cheaper?
A direct rate comparison is misleading. Bridging finance rates are often quoted at 0.5–1.0% per month, while development finance rates are 0.7–1.2% per month. However, because development finance draws down in stages, the borrower only pays interest on the amount actually drawn. On a typical 12-month build, the average drawn balance might be 50–60% of the total facility, meaning the effective interest cost can be lower than a bridging loan despite the higher headline rate.
Development finance also has additional costs that bridging does not — monitoring surveyor fees (£500–£1,500 per visit), QS reports, and potentially higher legal fees due to the complexity of the facility agreement. These must be factored into the total cost comparison.
The grey area: heavy refurbishment
Some projects fall in between — a heavy refurbishment that involves structural work but is not a ground-up build. Some lenders offer "heavy refurb bridging" products that sit between the two, providing staged drawdowns like development finance but with simpler documentation and faster processing. These can be a good fit for projects with build costs under £250,000 where a full development finance facility would be disproportionate to the scale of works.
How Assesr helps you find the right product
When you submit a deal through Assesr, the platform assesses the scheme characteristics and matches it to the appropriate product type automatically. If a project is better suited to bridging or heavy refurb bridging than full development finance, the matching algorithm will route it accordingly — ensuring you see lenders offering the right product, not just the cheapest rate on the wrong one.