Smart ways to secure bridging finance for development sites

When purchasing a development site, timing can be critical. Whether you've found the perfect plot of land or need to act quickly on a commercial opportunity, bridging finance offers a solution to secure the property while your long-term funding arrangements are finalised.

What is Bridging Finance for Development Sites?

Bridging finance is a short-term loan that helps you purchase a development site when you need to act quickly. These loans typically run for 6 to 12 months, giving you time to arrange permanent financing or complete your development plans. The loan term usually extends to 12 months if your new property requires construction work.

Bridging finance allows you to:
• Secure development sites before competitors
• Purchase land while selling your existing property
• Bridge the gap between buying and arranging long-term development finance
• Maintain cash flow during property transitions

How Bridging Loans Work for Development Purchases

When applying for a bridging loan for a development site, lenders assess your financial situation differently than traditional home loans. The application process focuses on:

Peak Debt Calculation
This represents the maximum amount you'll owe, including the contract purchase price of the new property plus your existing mortgage debt.

End Debt Assessment
This shows your remaining debt after selling your current property or securing permanent development finance.

Loan to Value Ratio (LVR)
For development sites, lenders typically require lower LVRs than residential properties. Your borrowing capacity depends on the site's potential and your development experience.

Interest Rates and Loan Structure

Bridging loan rates are typically higher than standard home loan interest rates. You can choose between:

Variable Interest Rate Options
• Rates adjust with market conditions
• Often include interest rate discounts for experienced developers
• May offer offset account facilities

Fixed Interest Rate Loans
• Provide certainty for your loan term
• Help with calculating bridging loan repayments
• Protect against rate increases during development planning

Lenders Mortgage Insurance (LMI) Considerations

Depending on your loan amount and LVR, you may need to pay lenders mortgage insurance. However, some lenders offer different LMI arrangements for development projects, particularly if you have:
• Proven development experience
• Detailed development plans
• Strong financial backing
• Pre-sales or development approvals

Application Process and Documentation

The streamlined application process for development bridging loans requires specific documentation:

1. Financial Documentation
   • Bank statements covering the last three months
   • Proof of income and assets
   • Details of your existing financial commitments

2. Development Information
   • Site plans and development proposals
   • Council approvals or development applications
   • Market analysis of the local property market
   • Construction quotes if applicable

3. Exit Strategy
   • Plans for permanent financing
   • Timeline for development completion
   • Sale strategy if applicable

Getting Pre-Approved for Bridging Finance

Loan pre-approval can give you confidence when bidding on development sites. To get pre-approved:

• Assess your borrowing capacity with multiple lenders
• Compare bridging loan options from banks and non-bank lenders
• Understand the interest capitalisation arrangements
• Review all fees and charges

Access bridging loan options from banks and lenders across Australia through experienced mortgage brokers who understand development finance.

Managing Your Investment During the Loan Term

While holding the development site:

Interest Capitalisation
Many bridging loans allow interest capitalisation, meaning interest payments are added to the loan balance rather than requiring monthly payments.

Offset Account Benefits
Some lenders offer offset accounts, allowing you to reduce interest charges by maintaining cash balances.

Development Progress
Keep lenders informed about development approvals, construction progress, or sale negotiations to maintain good relationships.

Planning Your Exit Strategy

Successful bridging finance requires a clear exit strategy:

• Development Finance: Transition to a construction loan
• Sale Strategy: Sell the site to another developer
• Investment Loan: Convert to a long-term investment property loan
• Refinancing: Move to conventional development funding

Bridging finance for development sites requires careful planning and professional guidance. Understanding the loan application requirements, interest rate options, and exit strategies helps ensure your development project starts successfully.

Simple Lending can help you access bridging loan options from banks and lenders across Australia. Our team understands the unique requirements of development finance and can guide you through the application process to secure the right funding solution for your project.

Call one of our team or book an appointment at a time that works for you to discuss your development site financing needs.