Bridging Loan vs Development Finance: Which Property Finance is Right?
Property investors and developers often face a choice between bridging loans and development finance when funding a project. Both are short-term, property-secured products, but they are structured very differently and are suited to different types of project. Using the wrong product can significantly increase costs or result in a declined application.
Quick answer
A bridging loan is a simple, fast short-term loan secured against the current value of a property. Development finance is a structured facility that releases funds in stages against the gross development value (GDV) of a project - ideal for new builds and major conversions. Use a bridging loan for purchase, refurbishment, or time-sensitive transactions. Use development finance for projects with significant build cost and a defined GDV-based exit.
Side-by-side comparison
A bridging loan is assessed on the current open market value (OMV) of the security property. It is designed for short-term use: buying a property quickly, refurbishing it, and either selling or refinancing to a mortgage. It provides a lump sum upfront rather than staged drawdowns.
- Fast to arrange (5-10 working days)
- Lump sum upfront - simple drawdown structure
- No planning or build programme required
- Flexible security requirements
- Suitable for light refurbishment
- Assessed on current value, not GDV
- Not suitable for significant ground-up build or heavy conversion
- Monthly interest costs accumulate quickly
- Usually capped at lower LTV than development finance
Property purchase, light to medium refurbishment, chain breaks, auction purchases, or any transaction where speed is the priority.
Development finance is a structured facility for new builds and major conversions. The loan is based on the gross development value (GDV) of the completed project rather than current value. Funds are released in stages as the build progresses, verified by a monitoring surveyor. This staged drawdown reduces interest costs compared to taking the full loan upfront.
- Assessed on GDV - can fund up to 70-75% of total project cost
- Staged drawdowns reduce interest (you only pay on what you draw)
- Specifically designed for build programmes
- Higher total LTV available than bridging on a build-out
- Can fund land + build in a single facility
- Slower to arrange (4-8 weeks for full underwriting)
- Monitoring surveyor required - adds cost
- Requires planning permission and detailed build programme
- More complex application with quantity surveyor's report
- Staged drawdowns require management and reporting
Ground-up residential or commercial development, major conversion projects (e.g. office to residential), or any project where build cost and GDV are central to the financial structure.
Key criteria compared
| Criterion | Bridging Loan | Development Finance |
|---|---|---|
| Loan basis | Current open market value | Gross development value (GDV) |
| Drawdown structure | Lump sum upfront | Staged - released as build progresses |
| Planning required | No | Yes (typically full planning) |
| Monitoring surveyor | No | Yes - required by lender |
| Suitable for ground-up build | No | Yes |
| Time to complete | 5-10 working days | 4-8 weeks |
| Typical max LTC | 65-75% of current value | 70-75% of total project cost |
Frequently asked questions
Can I use a bridging loan to fund a development project?
A bridging loan can fund light refurbishment and some conversion projects, but it is not suitable for ground-up development or major structural works. Bridging lenders assess the current property value, not GDV, which limits the loan size relative to a development finance facility that factors in the completed value. For projects with significant build cost, development finance will almost always provide more funding at a lower effective cost.
What is a monitoring surveyor in development finance?
A monitoring surveyor (also called a project monitor) is an independent professional appointed by the development finance lender to inspect the build at each stage before releasing the next tranche of funds. They verify that work has been completed to the required standard and cost, protecting the lender's position. Their fees (typically £2,000-£10,000 depending on project size) are usually added to the loan facility.
What is LTGDV in development finance?
LTGDV stands for Loan to Gross Development Value. It is the ratio of the total facility (land loan plus build cost facility) to the estimated end value of the completed development. Most development finance lenders will lend up to 65-75% LTGDV. This is a key metric because it ensures the lender has sufficient equity cushion if the project is delayed or the end value is lower than forecast.
Bridging loans and development finance solve different problems. If your project involves buying a property and doing work that will increase its value before selling or refinancing, both products have a role. Spark Finance arranges both and can structure the right solution - or a combination of both - depending on the complexity and scale of your project. Speak to one of our advisers for a no-obligation discussion about your specific development.
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