A bridging loan to repay development finance

What the bridging lender needs to see before it will redeem

A lender pricing a bridge to repay development finance is assessing a completed, sellable asset rather than a long trading record, so its checklist is practical. It wants a redemption statement from the outgoing development lender that fixes the balance and the date, sight of the completion certificate, the building regulations sign-off and structural warranties, and an independent market valuation of the finished scheme. Above all it wants a credible exit: realistic pricing and a sensible absorption rate over the marketing run, a lettings plan, or a refinance onto term debt. Where the scheme is only near-complete the bar rises, because the lender now prices the works still to do and the risk the finish runs on, and a part-complete facility is priced somewhere between a construction rate and a fully finished one. Two things speed the decision more than anything. The first is a clean redemption statement, because the bridge cannot be sized or dated until the exact payoff figure is known. The second is a valuation instructed early, since it gates the offer. Where the development loan has already expired, lenders are generally comfortable redeeming a defaulted facility provided the default is a maturity default rather than a conduct or fraud issue, and provided the finished value supports the loan. We assemble this pack up front, so the case reaches the lender complete and the underwriter is not waiting on documents. All criteria vary by lender, asset and scheme, and nothing here is an offer of finance.

How much the bridge can advance against your finished value

A bridge to repay development finance is set against the completed scheme's gross development value on a loan-to-GDV basis, indicatively up to 70 to 75 percent, and up to 75% achievable on a strong, fully finished asset. Because the asset is now valued as finished rather than at build cost, that figure often exceeds the development balance you are redeeming, and the gap between the two is headroom the bridge can release as equity once the outgoing lender is paid. What lands in your account on day one is the net loan: the gross facility less the lender's fees and any interest retained or rolled up, so the practical question is whether the net advance clears the redemption figure with margin to spare. If the development loan has run into default interest, the redemption statement will be higher than the headline balance, and we size the bridge against that inflated figure rather than the original loan so there is no shortfall on the day. Interest is normally retained or rolled up over the term, which means nothing to service from sales proceeds until the units complete, though the interest can be serviced if you would rather hold the balance down. We model the redemption figure, the net advance and any equity released before approaching lenders. These bands are illustrative, shift with the lender and the scheme, hinge on principal sign-off, and never amount to an offer.

Pricing, fees and what a fast redemption really costs

The saving that justifies the switch is on monthly carry. Moving off a development facility priced for construction risk onto a bridge at an indicative rate between 0.65 and 0.95 percent per month usually trims the monthly cost, and it removes the term expiry that would otherwise force a sale on the lender's timetable. On top of the monthly rate expect a lender arrangement fee, indicatively in the region of 1 to 2 percent of the facility, an independent valuation fee, legal costs for both sides including the redemption work, and sometimes an exit fee. There is a cost the query above often misses: if the development loan is already in default, every week before redemption is charged at the outgoing lender's penalty rate, which can be multiples of the original rate, so the speed of the switch is itself a cost saving. Because interest on the bridge is usually retained or rolled up, the figure to focus on is the all-in cost across the whole term rather than the monthly rate in isolation, and the single biggest lever on that is time: a bridge carried for three months costs a small fraction of one carried for eighteen. Our broker fee is set out in writing, we price the full cost stack across the full term, and we never tie ourselves exclusively to one lender. Every figure quoted here is indicative and not an offer of finance.

Redeeming now versus extending the development loan

When a development facility nears expiry the developer usually faces two roads: ask the existing lender for an extension, or redeem the loan with an exit bridge. An extension can look simpler because it stays with a lender who already knows the scheme, but it typically keeps the construction-risk pricing on an asset that no longer carries construction risk, and it often comes with an extension fee and a shorter, tighter runway. A bridge to repay development finance instead clears the senior lender outright, resets the pricing to a finished-scheme rate, and hands the sales timetable back to you. Where the loan has already tipped into default the calculus is sharper still, because an extension may not be on offer at all and the default rate makes standing still expensive, so redeeming is frequently the cheaper move even after the switching costs. The other alternative, a distressed or forced sale to clear the lender, almost always leaves value on the table that a proper marketing period would have captured. We map the redemption figure, the switching costs and the monthly saving against the cost of staying put, and we arrange the bridge only where it truly cuts the carry or gains the scheme the time it needs. Selling versus refinancing the finished units is covered at /learn/selling-vs-refinancing-a-completed-development/.