Business Moneyfacts Magazine Apr 2025
Bridging finance is highly specialised, requiring expertise in structuring short-term, flexible loans for time-sensitive projects.
Unlike mainstream mortgages, bridging loans are tailored to the borrower’s unique circumstances, demanding deep knowledge of valuation, risk assessment and legal complexities.
Bridging lenders focus more on the asset and exit strategy rather than rigid affordability assessments or credit scores. This makes them more flexible in structuring deals, even for borrowers who might not meet traditional lending criteria.
They are also more open to unusual property types, complex ownership structures and borrowers with non-standard income sources.
However, that doesn’t mean that there isn’t scope for criteria improvement and greater competition in certain areas of the bridging sector.
Three areas that come to mind are how lenders handle development exits, large loans and cases where the borrower has purchased land for development – particularly land without planning permission.
Let’s start with development exit loans, which are short-term loans used by property developers to pay off development finance loans.
Despite the usefulness of this type of lending facility, few lenders truly understand this space. Some do, but many apply restrictive criteria that hinder applications.
Valuation is a key issue. For example, development lenders assess a block of flats based on aggregate unit value, but many bridging lenders apply a block discount, because they are worried they would need to sell units individually if repossession became necessary.
This can distort loan-to-value (LTV) ratios, making financing harder to secure. When fees are factored in, a 65% LTV loan can quickly edge towards 70%, resulting in higher rates for the borrow or even a failed application.
How lenders classify dev exits can also be an issue. Many lenders class development exits as large loans, which some lenders are wary of and so usually attach more restrictive criteria.
I understand why, of course. It hurts much more when a big loan goes bad compared to a smaller loan. Sometimes lenders are also restricted by their funders in terms of what criteria they can offer. So if the funder doesn’t want to fund larger loans, the lender can’t offer them, even if it wants to.
The final area where there is more competition and innovation needed is around the treatment of unconditional land. This is land that has been purchased without any conditions attached, particularly in relation to planning permission.
With unconditional land, the buyer is committed to the purchase regardless of whether they obtain planning consent for development. The price of this land is usually lower, because it’s based on the land itself and not the potential development value.
That means it is higher risk because there is no guarantee that the land can be developed as intended. But if the developer receives planning permission, the rewards can be enormous.
This uncertainty also increases the risk to lenders as it makes it hard to value unconditional land. Without clear development prospects or comparable sales, its worth remains speculative and dependent on future approvals. That’s why very few lenders operate in this part of the market.
Again, I can see why, though lenders can mitigate that risk by being more conservative with their valuations. However, unfortunately, it’s difficult to find the necessary skill, experience and expertise to do this correctly.
For brokers and borrowers, their best bet is to try a lender that not only specialises in bridging but also offers development finance.
In my experience, these lenders tend to have the requisite experience to deal with more complicated transactions and also have more of an appetite for larger loans.
Some lenders already navigate these areas of the market well and are benefiting from strong demand.
However, for the market to grow, more lenders need to refine their approach, aligning underwriting criteria with borrowers’ needs.
Lenders which adapt will find ample business, while borrowers will benefit from greater flexibility – ultimately leading to better outcomes across the board.
Lucy Waters is Managing Director of specialist finance broker Aria Finance