What is the difference between development finance and bridging?

Bridging is short-term lending to purchase and complete quickly, usually with the property already lettable or saleable in its current state. Development finance is structured for projects where significant work (refurbishment, conversion, ground-up build) is needed before the property can be mortgaged or sold. Development finance typically releases funds in tranches as the build progresses.

How is development finance priced?

Typically 0.75% to 1.5% per month, plus arrangement fees of 1.5-2.5% and exit fees of 1-2% (often of the gross development value rather than the loan). Pricing is higher than bridging because of the construction risk and tranched drawdown structure.

Can I get development finance with adverse credit?

Often yes, because the loan is underwritten primarily against the project and exit rather than the borrower's credit file. Strong experience and a credible scheme matters more than a perfect credit score.

Do I need planning permission before applying?

For any project requiring planning permission, yes — lenders will not fund speculatively. Permitted-development schemes (some loft conversions, some single-storey extensions, some barn conversions under Class Q) do not need permission and can be funded earlier in the process.

Development Finance After A Declined Mortgage

Development finance is specialist UK lending for projects where the property needs significant work — major refurbishment, conversion, or ground-up construction — before it can be mortgaged or sold. It is the common answer when a mainstream mortgage is declined because the property is in poor condition, or when the buyer intends to add value before refinancing.

When development finance is the right answer

The property you are buying is not mortgageable in its current state (no kitchen, no bathroom, structural issues, significant disrepair).
You are converting a property — loft, extension, barn, commercial-to-residential under Class Q.
You are building ground-up on a plot of land.
You are buying and refurbishing to refinance at a higher value or to sell at a profit.

How the loan is structured

Development finance is typically structured in two components:

Day-one loan. Funds to purchase or refinance the property on day one, up to 65-75% of current value.
Tranched build costs. Additional funds released in stages as the build progresses, usually triggered by monitoring-surveyor inspections. Typically covers 100% of build cost up to a cap on total loan-to-gross-development-value (LTGDV), often 65-70%.

Typical terms

Loan size: £200k to £20m+, with specialist lenders active across the range.
Term: 6-24 months, matching the expected build programme plus a buffer.
Rates: typically 0.75-1.5% per month (9-18% annualised).
Arrangement fee: 1.5-2.5% of the facility.
Exit fee: 1-2%, often calculated on gross development value rather than the loan itself.
Interest is usually rolled up (added to the loan) rather than paid monthly, so the borrower is not cash-flow constrained during the build.

Exit strategy

The lender underwrites the exit — how the loan gets repaid at the end of the term. The two common exits:

Refinance onto a standard mortgage once the property is complete and can be valued as a finished asset.
Sale of the finished property with the loan repaid from proceeds.

You need to evidence the exit at application: a decision in principle from a mainstream lender, or a marketing plan with realistic comparable sales.

Why development finance gets approved when a mortgage does not

Mortgage lenders value the property as it is today. A property without a functional kitchen, bathroom, or heating system has no mortgage value. Development finance lenders value the project — they underwrite against the completed scheme (gross development value) net of the work needed to get there (build cost). The same property that fails a mortgage valuation routinely passes development-finance underwriting.

Frequently asked questions

What is the difference between development finance and bridging?: Bridging is short-term lending to purchase and complete quickly, usually with the property already lettable or saleable in its current state. Development finance is structured for projects where significant work (refurbishment, conversion, ground-up build) is needed before the property can be mortgaged or sold. Development finance typically releases funds in tranches as the build progresses.
How is development finance priced?: Typically 0.75% to 1.5% per month, plus arrangement fees of 1.5-2.5% and exit fees of 1-2% (often of the gross development value rather than the loan). Pricing is higher than bridging because of the construction risk and tranched drawdown structure.
Can I get development finance with adverse credit?: Often yes, because the loan is underwritten primarily against the project and exit rather than the borrower's credit file. Strong experience and a credible scheme matters more than a perfect credit score.
Do I need planning permission before applying?: For any project requiring planning permission, yes — lenders will not fund speculatively. Permitted-development schemes (some loft conversions, some single-storey extensions, some barn conversions under Class Q) do not need permission and can be funded earlier in the process.