The headline difference
Bridging is asset-based lending. The loan is sized against the value of an existing property. The borrower receives the full loan on day one (or close to it) and pays it back at the end of the term, either by selling the asset or refinancing onto longer-term debt. There is no construction component - the property either exists already or, in the case of refurb bridging, undergoes light cosmetic works.
Development finance is project-based lending. The loan is sized against the build cost and the future Gross Development Value. The borrower draws the loan in stages - a day-one tranche for site purchase, then monthly construction tranches against the monitoring surveyor's valuations. The property is being built or substantially converted during the loan term.
If the build cost is more than 20-25% of the day-one property value, you need development finance. Below that, refurbishment bridging usually works.
Leverage maths: how each is sized
Bridging is sized on Loan-to-Value (LTV) against the day-one property value. Senior bridging typically caps at 70-75% LTV (residential) or 65-70% LTV (commercial). The lender takes a charge against the asset; the loan is drawn in one go at completion.
Development finance is sized on the dual cap of LTGDV (Loan-to-Gross-Development-Value, typically 60-65%) and LTC (Loan-to-Cost, typically 80-85% senior or 90% stretched senior). The lender takes a charge against the site and steps in to fund the build alongside the developer.
The structural difference matters because development finance lets the borrower leverage the finished GDV rather than the day-one site value. On a site worth £2m with an £8m GDV, bridging caps the loan at £1.4m (70% of £2m). Development finance can lend £5.2m (65% of £8m) - the developer can buy the site, build it out and exit, without putting in £3.8m of cash equity.
Drawdowns and monitoring
Bridging loans usually draw down in one go at completion (sometimes with a small retention for renovation works on heavy refurb bridging). There is no monthly cycle. The borrower has the funds, completes whatever works are planned, and repays at the end of the term.
Development loans draw down in stages. The day-one tranche is released at completion, covering site purchase plus initial fees. The construction tranche is then released monthly against the monitoring surveyor's certification of work done on site. Most schemes run 6-10 drawdowns over a 12-24 month build.
The drawdown structure has cash flow implications. Bridging gives full liquidity on day one - good for borrowers who need flexibility but expensive because interest accrues on the full loan from day one. Development gives staged liquidity matched to spend - cheaper in total interest because the construction tranche is only drawn as it is spent.
- Bridging: one drawdown at completion, full interest from day one
- Heavy refurb bridging: one drawdown with retentions released against scope
- Development finance: day-one tranche + monthly construction drawdowns
- Monitoring surveyor: required on development, optional on heavy refurb
Rates, fees and total cost
Bridging rates run 0.50-0.85% per month on senior, with most cases pricing at 0.65-0.75% per month. Arrangement fees 1.5-2% on day one, exit fees 0-1%. The borrower pays interest on the full loan from day one.
Development senior debt runs 0.49-0.85% per month on the senior tranche. Arrangement fees 1.5-2% on drawn funds, exit fees 1-2% on day-one or full loan amount. The borrower pays interest only on what has actually drawn - which on a typical scheme is a fraction of the gross loan in the early months.
Comparing total cost requires modelling, not headline rate comparison. A £5m development facility over 18 months at 0.75% per month costs around £700k in rolled-up interest. A £5m bridging facility over 18 months at the same rate costs around £675k. Similar headline cost - but the development facility funded a £3m build the bridging would not have funded at all.
When to use each
Use bridging when: you are buying an existing property that needs little or no work, you are bridging a chain on a residential purchase, you are buying at auction with 28-day completion, you are unwinding a development facility post-PC with a development exit bridge, or you are refurbishing an existing residential or commercial property with works under 20-25% of value.
Use development finance when: you are buying a site to build new units, you are converting a commercial building into residential (PD or full planning), you are extending or substantially altering an existing property where build cost exceeds 25% of value, or you are funding a multi-stage refurbishment with a monitored programme.
The grey zone - heavy refurbishment of an existing property - is where most borrowers get confused. The test is build cost as a percentage of day-one value. Above 20-25%, the lender will treat it as development. Below that, refurb bridging is the right wrapper.
Our specialists arrange both products. On grey-zone cases our specialists benchmark a refurb bridging quote against a development quote and recommend the cheaper, faster route. About one in four enquiries that start with the wrong product gets repositioned once a specialist has reviewed it.