The confusion between bridging and development finance costs investors thousands of pounds. Get it wrong and you'll either overpay in fees or have your funding pulled mid project.
We see this weekly: An investor calls asking for a bridging loan for their "small refurbishment." During the conversation, we discover they're removing internal walls, adding a rear extension, and converting the loft. That's not bridging territory. That's development finance.
Alternatively, someone requests development finance for what's essentially a cosmetic renovation. They'll pay thousands in unnecessary QS fees and monitoring costs for a project that needs simple bridging.
This guide gives you clarity. By the end, you'll know exactly which product your project needs and why it matters.
The Simple Distinction
Bridging Finance: Buy and hold, or light refurbishment that doesn't fundamentally change the property.
Development Finance: Substantial building works that fundamentally transform the property's structure, layout, or use.
If you're doing work that requires building control sign off or structural calculations, you're in development finance territory. If you're replacing kitchens, bathrooms, and decorating, you're in bridging territory.
Bridging Finance: When It's Right
Suitable For
- Property purchase with no works or cosmetic improvements only
- Light refurbishment: new kitchen, bathroom, flooring, decoration
- Speed critical transactions: auction purchases (28 day completion)
- Chain break situations: buying before your property sells
- Short term hold: you'll exit within 12 to 18 months maximum
How Bridging Works
Single drawdown (or occasionally 2 stage). The lender releases funds on completion. You use the money as needed. Interest charges from day one on the full loan amount. Typical term: 12 to 18 months maximum.
If you're doing refurbishment works, some lenders offer 2 stage bridging: 70% to 80% on completion, remaining 20% to 30% when works complete. This helps cash flow but you're still paying interest on the first tranche throughout.
Typical Costs
- Interest: 0.55% to 1% per month (6.6% to 12% annualised)
- Arrangement fee: 1% to 2% of facility
- Valuation: £400 to £1,500
- Legal fees: £1,500 to £3,000 total
- No QS or monitoring costs
Maximum Works Budget
Generally up to £50,000 to £100,000 of improvements. Nothing structural. No works requiring building control beyond basic notification. Think cosmetic and mechanical (heating, electrics, plumbing) rather than structural.
Bridging Best Practice
Bridging works best when you need speed and your project doesn't involve major construction. Auction purchases, chain breaks, and quick cosmetic refurbs are ideal bridging scenarios.
Development Finance: When It's Right
Suitable For
- New builds: ground up construction from bare plots
- Major conversions: commercial to residential, house to multiple flats
- Heavy refurbishment: structural alterations, extensions, new floors
- Projects requiring building control sign off and inspections
- Works budgets typically over £100,000
- Projects taking 12 to 24 months from start to finish
How Development Finance Works
Phased drawdowns tied to build progress. Your quantity surveyor (QS) inspects works monthly or at key milestones, certifies completion to date, and the lender releases funds for completed work.
Typical structure:
- Day 1: Land purchase funds released (100% of agreed land value)
- Monthly or bi monthly: Drawdowns against QS certified valuations
- Each release: 90% to 100% of work certified as complete
- Final retention: Last 5% to 10% held until practical completion
Interest is charged only on funds drawn. If you've drawn £400,000 of a £1 million facility, you pay interest on £400,000 only. This saves money compared to bridging where interest runs on the full loan from day one.
Typical Costs
- Interest: 0.75% to 1.5% per month (9% to 18% annualised)
- Arrangement fee: 1.5% to 2% of facility
- Valuation: £3,000 to £10,000+ (depends on complexity)
- Legal fees: £2,000 to £6,000+ total
- Monitoring surveyor: £500 to £1,500 per visit (typically 8 to 12 visits)
- Total QS/monitoring budget: £6,000 to £18,000 over the project
Why It Exists
Development finance protects both you and the lender. The lender doesn't release all funds upfront and then hope you build what you said you'd build. You don't have all the capital tied up from day one when you won't need it until later stages.
The phased release matches your actual need for capital. You draw land purchase funds on day one. Foundation costs in month 2. Superstructure costs in months 3 to 6. Fit out costs in months 7 to 10. This aligns funding with spend.
Direct Comparison: Bridging vs Development Finance
| Factor | Bridging Loan | Development Finance |
|---|---|---|
| Works Budget | Under £100K typically | £100K+ typically |
| Works Type | Cosmetic, non structural | Structural, major works |
| Drawdown | Single (or 2 tranches) | Multiple staged releases |
| Interest Charged On | Full loan from day 1 | Drawn funds only |
| QS/Monitoring | Rarely required | Always required |
| Building Control | Not needed (or basic) | Full sign off required |
| Typical Timeline | 3 to 18 months | 12 to 24 months |
| Exit Strategy | Sale or refinance | Sale or refinance |
| Experience Needed | Minimal | Preferred but not essential |
| Interest Rate | 0.55% to 1% pm | 0.75% to 1.5% pm |
| Best For | Speed, simplicity | Major construction |
The Grey Area: Heavy Refurbishment Finance
Some projects sit awkwardly between bridging and full development finance. They're too big for standard bridging but not quite substantial enough for full development finance costs to make sense.
Heavy Refurb Bridging Products
Some specialist lenders offer bridging products with staged drawdowns specifically for refurbishment projects. These suit:
- Works budgets between £50,000 and £250,000
- Projects with some structural elements but not ground up builds
- Refurbs taking 6 to 12 months
- Situations where full development finance monitoring is overkill
Typical structure: 2 to 4 staged releases tied to major milestones (purchase, works 50% complete, works 90% complete, retention on completion). Simpler than monthly QS inspections but more controlled than single drawdown bridging.
Decision Factors for Grey Area Projects
Consider Development Finance If:
- Structural work is involved (removing/adding walls, new floors)
- Building regulations approval and inspections required
- Works budget exceeds £150,000
- Project timeline is 12+ months
- You need maximum leverage (development finance offers higher LTVs)
Consider Heavy Refurb Bridging If:
- Works are primarily mechanical and cosmetic with limited structural
- Project completes in 6 to 9 months
- Works budget is under £150,000
- You want to minimise monitoring costs and complexity
- Speed is critical (bridging completes faster)
Rule of Thumb: When in Doubt, Get Professional Advice
The wrong product creates expensive problems mid project. A lender might refuse further drawdowns because works are more extensive than the bridging product allows. Or you might pay £15,000 in development finance monitoring for a project that didn't need it. Speak to a broker before committing.
Common Mistakes to Avoid
1. Using Bridging for Major Works
The Problem
You take bridging finance planning to do "light refurbishment." During the project, you discover the works are more extensive than expected. Structural issues need addressing. The project takes 14 months instead of 6.
The Consequence
You're paying interest on the full loan amount for 14 months when you could have used development finance paying interest only on drawn funds. The extra interest costs more than the monitoring fees you'd have paid with development finance.
Worse Case
The bridging lender discovers mid project that works are more substantial than disclosed. They refuse to extend the term. You're forced to refinance mid project at significant cost.
2. Paying for Development Finance When Bridging Would Do
The Problem
You want maximum leverage and accept development finance for what's really a straightforward refurbishment. You end up paying for 10 QS visits at £1,200 each (£12,000) when the project didn't need monthly monitoring.
The Consequence
You've spent £12,000 on monitoring fees plus higher arrangement fees for no actual benefit. That money came straight out of your profit.
3. Underestimating Works Budget
The Problem
You tell the lender your works budget is £80,000 to stay within bridging parameters. Reality is £140,000. Mid project, you run out of funding.
The Consequence
With bridging, all funds are already released, so the shortfall comes from your pocket. With development finance, if costs are higher than stated, the lender won't release additional funds without renegotiating (expensive and time consuming). Either way, inaccurate budgeting creates pain.
4. Ignoring Exit Strategy Differences
The Problem
You take 12 month bridging for a project that will actually take 18 months to complete plus 3 months to sell. You've mismatched product to timeline.
The Consequence
You need expensive extensions. Development finance terms typically extend to 24 months, giving you more breathing room for complex projects.
How to Choose: A Decision Framework
Ask These Four Questions
1. What's your works budget?
Under £75K → Definitely bridging
£75K to £150K → Could be either, depends on works type
Over £150K → Probably development finance
2. Are you doing structural work?
No structural, just cosmetic → Bridging
Some structural (one extension, loft conversion) → Heavy refurb bridging
Significant structural (multiple floors, major conversion) → Development finance
3. Do you need building control sign off?
No, or just basic notification → Bridging
Yes, with inspections required → Development finance
4. How long will the project take?
3 to 6 months → Bridging
6 to 12 months → Could be either
12+ months → Development finance
If you answered bridging to 3 out of 4 questions, bridging is probably right. If you answered development finance to 3 out of 4, development finance is probably right. If it's 2 and 2, speak to a broker who can assess the specifics.
Frequently Asked Questions
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