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How bridging finance can save development projects

Posted: September 10, 2018

Developers will be well aware there are many issues that delay building or renovation work, and these can threaten the financial viability of a project. Here we look at how developers can use bridging finance to save the day.

A property developer can sometimes arrange for the completion date for a derelict property purchase to be delayed, giving the them time to carry out building work in the property that will add to its value. Derelict property is usually ineligible for a mortgage until it has been made habitable.

In a recent case, a developer had exchanged contracts for a property purchase but arranged for a six-month delay in completing the sale. This delay was to enable him to complete renovation work to make the property eligible for a mortgage. As often happens in construction work, there were several unexpected issues which meant that he could not complete the work within the six-month period. If he could not raise the finance to complete the purchase in time, he could forfeit the property and there was no guarantee he would be compensated for the cost of the building work.

The developer sought the help of a bridging finance broker who arranged for a bridging loan that was used to complete the purchase and allowed time to finish the renovations. The bridging loan funds were available seven days after the initial loan application. After completing the work, the landlord could arrange for a mortgage to repay the bridging loan and provide time to sell the property for a profit.