What is the difference between bridging and development finance?
Bridging finance and development finance are often confused with each other. After all, they are both types of specialist finance used for purchasing properties, residential and commercial purposes and you can borrow £50,000 to £100 million if you need to. Other similarities include:
- Both secured loans
- Both used for avoiding property chains
But what makes them different? Understanding the differences will help you narrow down your search and find the right company and product that you need.
Purpose of the loan
chat gay pied Bridging: Typically, bridging loans are associated with completing properties within a tight deadline – so if you need complete on a flat or building within 2 to 4 weeks, bridging will be faster than using a traditional mortgage. It is popular for:
- homeowners moving home, but have not sold their own property yet
- buying property at an auction
- raising finance for investments or for business growth
http://fairchanceproject.com/programs/fuel?share=google-plus-1 Development Finance: As the name suggests, it is more for development purposes. So if you are looking to renovate, extend or build up a new property from a plot of land, you would use development finance because the loan values are broken down into construction costs and for purchasing the land.
How the money is released
edit cookie firefox Bridging: Money is usually provided upfront in order to purchase the property, investment and complete on the deadline.
http://amg-serrurerie.fr/10787-dtf12763-sfr-mail-sign-in.html Development Finance: The funds are distributed in stages during your construction project, allowing you to avoid overspending, budget carefully and maintain a healthy cash flow.
The loan term for bridging and development finance is typically 3 months to 12 months, however, some development finance companies can extend to 24 months.
At the end of the loan term, repayments are different rolled up (sometimes they are paid each month, but usually rolled up) and paid in full by the customer upon the completion or sale of their property. If the property has not been completed or sold yet, the customer will usually refinance with the same or different lender, but under slightly less favourable terms.
How the amount you borrow is calculated
Bridging: Your loan is based on the loan-to-value (LTV), so you are required to pay a deposit and the lender will cover the rest. The maximum in the bridging loan industry is around 70% regulated or 75% unregulated and is rarely higher. If you are looking for a higher LTV, you can look at mezzanine finance which offers up to 90% but will require giving up a permanent stake in your business or project.
Development Finance: Your loan is based on Gross Development Value (GDV), the overall value of the loan once all renovations and development work has been completed. Most lenders offer up to 60% GDV and some will offer up to 70%. This is equal to paying all the construction costs and up to 50% of the land purchase cost, typically speaking.