Bridging Loans for Construction Projects

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Commercial new build and residential (self-build) construction projects are surprisingly easy to find when the land on which it is to be built is already owned outright by the developer.

It has even easier when planning permission has already been obtained by the developer (e.g. building upon land that forms past of the estate of a residential property). This is because planning permission adds value to the land in the eyes of the developers.

If the property, once built, is to be rented then the developer will need a longer term finance facility. If it is to be sold upon completion then short term funding (such as a bridging loan) is required. With any such bridging finance the exit plan will be the sale of the property once completed and you will need to be clear on when you can realistically sell the property or properties. I would always recommend being conservative in your estimates where possible.

Longer term financing is almost always unsuitable for funding developments and short term finance is unsuitable for renting as interest rates will usually be unaffordable.

New build developments are usually funded through development finance or in the form if bridge loans and the money will usually be released is stages that are pre-agreed.

This financing in stages helps to maintain low interest rates for the borrower. Funds will be released at pre-agreed milestones of the projects when certain goals are met. The perceived value of the property and land will increase at each of these stages.

This is where development finance is more preferable. In the case if a bridging loan, the advance of money would be based on the value of the land at the time if valuation. Development finance tends to be much more specialised and tailored in its approach and is usually more flexible and customised around the specific project at hand. This is also why bridging finance tends to be most popular with those looking to buy, renovate and sell on properties for profit rather than building them outright.

As mentioned previously, always try to air on the side of caution and conservatism when planning these projects. What if something were to go wrong with the build or if it took longer than expected to sell the property?

It would be well worth speaking to a broker that has a good deal of knowledge in property development finance and bridging loans for construction projects before creating a plan of auction. They will help you to create a plan if action and ensure the viability of any project that is undertaken.

Get a good idea of what you will be expected to repay beforehand as well as determining what will be classed as suitable security for the project.

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About the Author:

Alan has been a financial adviser for a number of years now specialising in mortgages and bridging. Alan is the managing director of Hampshire based mortgage broker "Mortgage Integrity". Before financial advising, Alan spent a number of years doing property development and his first introduction to bridging finance was a loan he was taking out in order to develop a property! The many years Alan spent in property development and the many times he personally required bridging finance gives him a unique perspective and understanding from both sides. Alan's contacts in the property development industry gives him insider access to hot, off-market property deals so drop him an email if you would like some info.

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