Bridging finance and development finance are both short term loans that are secured against property, but the main differential is that bridging is used to complete on property purchases in a tight deadline and development finance is structured in a way to pay for property or land purchases and building costs and funds are released in stages, rather than one lump sum.

Both bridging finance and development finance have several similarities, in that they are both used as non-bank alternatives to complete on properties quickly. 

Banks and high street lenders have become very restrictive with their lending criteria in recent years, making it hard to access capital. But in the last decade, the role of bridging finance and development finance have become more accessible for homeowners and property developers and they can be accessed through private lenders, investors, challenger banks and more.

What is a Bridging Loan?

A bridging loan is used typically by homeowners or property developers to become cash buyers and complete on a property in a short timeframe. A lot of property deals are delayed because of property chains and lengthy mortgage applications, but bridging finance allows you to move quickly and it is common for deals to be completed and properties are purchased within 2 to 4 weeks of approval. Borrowers can typically access up to 75% LTV.

What is a Development Finance Loan?

Development finance is commonly used by property developers who are looking to develop a piece of land or property from ground up or to renovate an existing property for the purpose of adding value. The developer may be looking to flip the property for a higher price or rent it out to tenants, both in the residential and commercial space. The loan is structured to cover up to 70% of land/property costs and up to 100% of building costs.

An Overview of Bridging Finance vs Development Finance

	Bridging Finance	Development Finance
Purpose	Buy property fast	Build up or renovate a property
Loan Structure	Up to 75% LTV	Up to 70% land costs, up to 100% build costs
Interest Rates	From 0.44% per month	4% to 15% APR
Funds Released	In one lump sum	In stages, upon milestones
Repayment Terms	3-12 months	3-12 months
Loan Amount	up to £50 million (or higher)	up to £50 million (or higher)
Risk	High	Medium
Secured against property	Yes	Yes

The Purpose of Bridging Finance vs Development Finance

Bridging finance helps homeowners, property developers and investors complete on properties that are time-sensitive. It essentially allows you to become a cash buyer, so you can move immediately on a property, avoiding any property chains or mortgage delays that might be slowing things down. 

The borrower may want a bridging loan to expand their portfolio, cease an opportunity or buy a property from an auction. Down the road, they may want to flip the property or rent it out to tenants.

Development finance is used to build up and develop plots of land or renovate an existing property. It is used by developers in the residential and commercial space and could involve a few homes, block of flats, HMO, student accommodation, office block or more. The loan is structured to pay for the land and cover most, if not, all of the building costs.

The Loan Structure of Bridging Finance vs Development Finance

Bridging finance is funded to the borrower in one lump sum, so that they can immediately purchase the property as soon as possible. The maximum LTV you can access is 75%, so you would require a minimum of 25% deposit to proceed.

Development finance is funded to the borrower in stages when they reach different milestones of the build project. It starts with purchasing the property or land (up to 70%) and then the build costs (up to 100%). The loan value and amount you can borrow is based on something called the GDV (gross development value) and this is what the property will be worth once fully renovated and completed. Borrowers can typically access up to 65% GDV.

The Repayment Terms of Bridging Finance vs Development Finance – Exit Strategy is Key

For both bridging and development finance, the loan durations are very similar, at a maximum of 18 or 24 months, depending on the lender.

The interest rate is usually rolled up and added to the final loan repayment – and this repayment is typically made upon exit, when the property has been sold off or refinanced under different terms or a different mortgage.

If you exit the loan early, there are usually early redemption fees that apply. 

If you cannot repay in full at the end of the loan term, late penalties and added interest may apply too.

The Interest Rates of Bridging Finance vs Development Finance

Bridging finance rates range from 0.44% to 2% per month depending on the lender, the level of risk, the LTV, the loan duration and other key factors. Bridging is deemed a higher risk to lenders so the rates are considered to be higher than development finance.

Development finance rates range from 4% to 15% APR depending on the lender’s terms and other factors such as those mentioned above. With funds released in stages, it helps to manage risk for the lender.

The Additional Costs of Bridging Finance vs Development Finance

There are various fees associated with taking out a bridging or development finance loan such as:

• Broker fees (1%-2%)
• Arrangement fees (1%-2%)
• Legal fees
• Surveyor fees
• Stamp duty

Development finance may incur slightly more fees because you require builders, architects and a development appraisal, subject to be approved.

Is The a Combination of Bridging and Development Finance?

Yes, this is known as a ‘development exit bridging loan’ which you might want to switch to half way through the project if everything is going smoothly. With construction going to plan and a clear exit in sight, you can switch to lower rates with this product because it is lower risk for the lender who feels confident about the overall project.

For any questions relating to bridging or development finance or to make an enquiry, please contact our team at enquiries@kpfinance.co.uk or speak to us on 0203 488 1128. 

Development finance is a type of structured finance designed to help with the development of a residential or commercial property or building up a property from a straight plot of land.

The terms of the loan arrangement are structured in such a way to pay for (1) land costs and (2) construction costs and the funds are released to you in stages or tranches to manage cash flow more effectively. The loan term ranges from 6 – 24 months depending on the amount of construction work required.

For ambitious property developers or investors, the role of development finance is more flexible and catered to the needs of a ground up development or refurbishment project. 

Funds are often available in just a few weeks, compared to a traditional or mainstream financial product which could take several months.

How Much Can I Borrow Through Development Finance?

You can borrow several thousand or millions through development finance, of which the amount you can access is based on multiple factors.

Importantly, most development finance lenders are willing to up to 65% GDV, which is the gross development value and what the property will be worth upon completion.

This figure can be narrowed down to the land costs and the construction costs, with most lenders willing to offer 50%-70% of land costs and up to 100% of build costs.

What Can Development Finance Be Used For?

• Flipping properties
• Renovating properties to rent them out to tenants
• Ground up new builds
• Conversions and renovations
• Residential properties
• Commercial properties
• Multi-use properties and HMOs

Development finance can be used to renovate a new or existing build, or develop a plot of land from the ground up.

What Are The Interest Rates and Fees For Development Finance?

Interest rates for development finance are around 4%-15% APR depending on various factors such as whether it is regulated or unregulated activity, the deposit amount, the level of risk and duration of the loan.

Other rates and fees to be aware of include:

• Arrangement fee (1%-2% of loan amount)
• Broker fee (1%-2% of loan amount)
• Solicitor and legal fees
• Architect fees
• Stamp duty fees
• Property valuation and surveyor fees
• Exit fees 

How Do Repayments Work For Development Finance?

Typically, the interest for a development finance loan is rolled up and paid upon the completion and exit of the project. 

This might be at the point where the developer has sold the property for a higher price or refinanced with a longer-term loan, such as a commercial mortgage or buy-to-let mortgage because they wish to rent it out to tenants.

What Information Do I Need For a Development Finance Loan Application?

• Business plans with cost analysis and project costs
• Details of planning permission grants and restrictions
• Schedule of building work and proposed timelines
• Details from architects and builders
• Clear exit strategy and timelines
• 3 months bank account statements
• Proof of identification 
• Projected gross development value (GDV)

How Is Development Finance Different To Bridging Finance?

The clear distinction between development finance and bridging finance is that development finance is specifically structured to build up, renovate or construct properties, developments or plots of land. The terms of the agreement including the way that funds are released in stages and covering build costs, is designed to help developers with cashflow and fund their development project.

By comparison, bridging finance is used to complete on property transactions in a tight deadline, helping you to avoid property chains and not factoring in building work per se. There are hybrids of bridging and development finance and we would be delighted to discuss these options with you.

KP Finance is here to help you with any queries you have relating to development finance. For more information, please contact Samuel at enquiries@kpfinance.co.uk or call today on 0203 488 1128

Airspace permitted development rights give you the opportunity to build up to additional floors on existing buildings without the need for planning permission.

For owners of residential and commercial properties, this presents huge opportunities to add new homes, flats, stores or offices on top of their existing premises, whilst reducing the lengthy wait and legal implications of planning permission.

The process of airspace permitted development rights (PDR) changed in a ruling by the UK government in 2020 which confirmed that planning permission is no longer required. Many have hailed this update as something that could save the UK’s housing shortage and potentially add another 200,000 extra homes or flats by simply building on the airspace.

The development of airspace is good for sustainability, since it does not encroach on green belt land and is essentially building upwards. These days, a lot of construction parts can be manufactured off site and transported to the location, making the development of new homes and flats very fast, time and cost-effective.

What is Included In Airspace Permitted Development Rights?

According to the GDPO legislation, there are permitted development rights if:

• The original building must be at least three storeys in height above ground level
• On a staggered building, only the higher part can be built upon
• The floor-to-ceiling height in your newly developed flats cannot be higher than 3m
• The newly developed units must be designed as flats
• The overall height of the renovated building’s roof cannot exceed 7m higher than the highest part of the existing roof
• Upon completion, the total height of your development cannot exceed 30 meters
• Your completed development should have no visible external support structure
• You can build up to a maximum of 500 or 1,000 feet depending on local authorities. Anything above this is deemed as higher stratum

What Could Be Developed In Airspace?

• Additional flats/homes
• Penthouses
• Offices
• Amentities such as gyms, social areas, bike lockers, storage
• Shops and stores
• Schools – classrooms and amenities 
• Car parks
• Health centres
• Hotels – additional floors and amenities
• Leisure – gyms, rooftop bars
• Conservatories 
• Greenhouses

Some Considerations of Airspace Permitted Development Rights

Whilst no planning permission is required to build into airspace, there are some important considerations for neighbours and the surrounding area:

Fitting in with design and architecture – The changes you make to your airspace should ideally coordinate with the designs and architecture of the local area and surroundings, to avoid any pushback from local residents. A professional architect will be required to draw up the construction plans and adhere to this.

Impact of neighbours – By developing upwards could impact the sunlight, privacy and onlooking for some neighbours and whilst this is typically covered in traditional planning permission, this is something that you should consult with your neighbours to avoid any complaints or things that could slow down the building work.

Impact on occupiers and tenants – If you are building on top of an existing block of flats or offices, this is likely to cause interruption or increased noise for existing occupiers and tenants. Plans should be made to compensate them, offer alternative accommodation and even adjust rents if new amenities are added.

Impact on utilities – Adding extra floors can create complications with utilities including water, gas, electricity and heat and making it a smooth transition to new homes and flats in the building. For some developers, this can be tricky, especially if there are water mains in the road that need to be amended, creating extra building work and inconvenience for local neighbours.

Do You Requirement Airspace Development Finance?

Airspace development offers huge potential to increase the number of properties and overall value for a residential or commercial estate. 

A lot of developers and airspace owners seek out specialist airspace development finance to help fund the build and construction costs in the most effective way.

KP Finance has a superb track record in this space and would be delighted to discuss your individual requirements drawing on over 15 years of experience.

For more information, please contact the KP Finance team by phone on +44203 488 1128 or email the team at enquiries@kpfinance.co.uk

Yes, you legally own the airspace above your property and can extend upwards to a reasonable point, with some local authorities allowing you to develop up to 500 feet and others 1,000 feet.

There are two types of airspace:

The lower stratum: This is the airspace above and around your home and your land. Anyone who interfered with this would be considered a trespasser, whether it is building something that encroaches on your land or your rooftop or placing a billboard or sign if you are based in the city.

The higher stratum: The higher stratum is the height above your property that is reasonably acceptable, implying that you can legally extend and build above your property up to a certain point. When it reaches 500 feet or more, the owner does not have rights to the upper stratum. 

Do I Own The Airspace Around My House?

Yes, you own the airspace around your house, such as the rooftop and above and any land that you have such as your garden. The exact terminology is that you have the right to the airspace above your land located in the lower stratum.

Do I Own The Airspace Above My Garden?

Yes, you have rights to the lower stratum of your garden meaning that you can build on it if you would like to, such as building an outhouse, additional property, office or gym – however this could be subject to planning permission depending on size and how it impacts the noise and sunlight of your neighbours.

The Role of Freeholders and Leaseholders in Owning Airspace

The freeholder of the property is the one who ultimately owns the property and its airspace. This could be sold to a collective group of leaseholders, which is common for a group of flats. The freehold can also be sold to private individuals and companies. Read our guide here about who owns the airspace of a property.

What Can I Do With My Airspace?

If you are the owner of your airspace, you have the opportunity to develop or build on top of it.

In 2019, the UK government changed laws to allow the construction of up to two storeys on existing buildings without the need for planning permission, because it falls under permitted development.

Develop your home – If it is your home, you have the option to build additional bedrooms, living space, bathrooms, gyms, offices and more.

Develop your block of flats – For a residential block of flats, you have an opportunity to add additional floors and rooms which could be rented out to tenants to generate more income and also increase the value of the property. You might want to improve the living spaces for your tenants by adding amenities such as bike sheds, gyms, social areas or more.

Develop your commercial building – If you have an office block, there is an opportunity to build up and add more offices or amenities for your tenants. In a sought after location, there is an exciting prospect to increase rental revenues and the overall value of the property.

Sell it to a developer – Airspace is becoming incredibly sought after by developers and investors. The opportunity to build additional floors and homes with no or limited planning permission is very appealing. Especially if you are located in a good area or dense area such as London where there is limited supply, the selling of your airspace could be very valuable.

Developing airspace is seen as being very sustainable and good for the UK housing crisis. By essentially building up, you are reducing the need to build on green belt land and in today’s world, a lot of construction can be manufactured off-site and almost fit onto the buildings like a puzzle. With less legal hurdles, the overall build is very sustainable, fast and cost-effective.

Would You Like To Discuss Airspace Development Finance?

Whilst a lot of lenders stay away from the complexities of airspace development loans, KP Finance has an excellent track record in this space and would be delighted to discuss your requirements and discuss a deal that could be structured for you. 

For more information, please contact the KP Finance team by phone on +44203 488 1128 or email the team at enquiries@kpfinance.co.uk

The airspace of a building is typically owned by the freeholder, the leaseholders who own the freehold or it could be sold to a property developer or investor.

The airspace refers to the area above a building and following changes in government regulation in 2020, the rules and planning permissions have become extremely relaxed, making the air space above buildings very ripe for development.

Whether it is property developers or owners, the opportunity to add an extra couple of floors to the building is very appealing, increasing the value of the property and the potential revenue that could be earned by adding new tenants. Or there is an opportunity to add further amenities such as rooftop bars, leisure facilities or offices.

Does The Freehold Own The Airspace Of a Building?

Yes, the freehold owner is typically the first person who owns the airspace of the building. But this can be structured in two ways:

1. The freehold can be collectively owned by the leaseholders of the building, known as a ‘share of freehold structure.’ In this scenario, every leaseholder owns a portion of the leasehold. This may be one share per flat, for instance.

2. The standalone freeholder is an individual or company who is separate from the leaseholders of the building and owns the entire freehold. This allows the individual to choose what happens to the airspace in any way. This might be keeping the airspace and doing nothing with it, developing it or selling it privately to another individual or company.

What Are Air Rights?

Air rights refer to who owns the airspace of the building. This is the legal right to use and control the space above a building or piece of land. 

Since the air rights are so valuable, especially in popular built areas such as London, they can be purchased, sold or leased independently. 

With this, there are air transfers where they are transferred from one individual to a private company or group of individuals. 

Can I Sell My Air Rights or Airspace Above My Building?

Yes, absolutely, it is a common feat these days to sell the airspace above your building to a group or private individuals and it can be very valuable, especially in attractive parts of town.

Do I Need Planning Permission To Develop My Airspace?

Today, there are a lot of airspace development projects where no planning permission is required. As per the passing of a Government legislation in 2020, if the building and project falls under permitted development, there is no planning required. This includes adding two additional storeys to your property if it already has 3 or more stories. The ideal buildings for developing airspace are private homes, office blocks, residential blocks of flats, high street shops and more.

Can I Get Airspace Development Finance?

Yes, KP Finance is delighted to offer an airspace development finance product which allows developers to borrow £1 million or more. A lot of mainstream lenders do not lend against airspace, however, we have a superb track record and strong understanding of how it works. The development of additional rooms, flats or offices can add significant value to the overall property and generate additional revenue streams.

For more information, please contact the KP Finance team by phone on +44203 488 1128 or email the team at enquiries@kpfinance.co.uk

Airspace in property refers to any space above an existing building such as a house or block of flats up to a reasonable point. This gives the landowner or leaseholder the legal right to extend above this building for their personal gain.

For many leaseholders and property owners, airspace offers some exciting development opportunities to add an extra floor or number of rooms to their current home or building that is rented out to tenants. 

Especially in dense areas where there is limited space, such as London, the opportunity to build upwards can be very attractive, helping you to increase the value of the overall property and add more tenants to help generate more revenue. For the leaseholder, you are able to earn more for owning the same building which is very commercially interesting.

Research shows that developing airspace could add an extra 200,000 homes/flats in London in the future.

It is a very popular idea from a sustainability point of view, by building up rather than encroaching on green belt land. There are also some exciting opportunities to construct the all the parts off-site and then they can built quickly on site, which will limit build costs and increase efficiency.

The ability to develop your airspace applies to:

• Residential homes
• Blocks of flats
• Office blocks
• Hotels
• Schools and public sector buildings
• Car parks
• Stadiums
• Event venues
• Shopping centres and shops
• Health centres

How Much Airspace Can I Develop On My Property?

The UK law says that you can build above your property up to a reasonable height. This may vary depending on the planning permissions of your local authority, with some allowing a maximum of 500 feet and others allowing up to 1,000 feet.

The laws set by the Civil Aviation Authority (CAA) state that the ownership of airspace does not extend infinitely upwards. So if you have plans of building the next Burj Khalifa from your humble abode, you may need to start from scratch. 

You also have the option to sell your airspace to a developer or investor who might want to finance an extension.

Do You Require Planning Permission To Develop Your Airspace?

In many scenarios, you may not require planning permission to develop airspace. 

There are permitted development rights to add two additional floors to blocks of flats.

To avoid planning permission, the building must be:

• Three storeys or more in height
• The extended building must be more than 30 metres in total height
• The height of the extension cannot be greater than seven meters compared to the highest part of the existing roof. 
• Any new storeys must be individually no more than three meters in height. 

Airspace Considerations For Neighbours and Existing Residents

When building and developing airspace, one has to be mindful of existing residentials in the building and neighbours. Whether planning permission is required or not, you may have to deal with pushback if you are working with overhanging drones or cranes or your tenants are subject to loud noise. Managing this is key to ensure a smooth build and transition. 

Can You Get Airspace Development Finance?

Yes, KP Finance offers personalised loans for airspace development. Whilst this type of funding is not offered by most mainstream lenders, we understand the complexities involved and can structure the finance according to your needs.

With the opportunity to build on properties in cities and other sought-after areas, the use of funding could help you turn around the project very quickly and generate an impressive revenue and additional stream of income.

For more information, please contact the KP Finance team by phone on +44203 488 1128 or email the team at enquiries@kpfinance.co.uk

Development finance is a type of loan which is used by developers specifically to build, construct and increase the value of a property or plot of land. 

The loan is structured in a certain way to assist with the building work and development process, taking into account the costs and cash flow. 

Specifically, a development finance loan will cover up to 70% of land/property costs and up to 100% of building costs. 

Understanding the process can help your application progress as quickly as possible and ensure that you know all the different stages involved.

Stage 1 – Start With An Enquiry

Start by getting in touch with a development finance company and explain the property or land you are looking to purchase and your plans for it. Having initial information such as planning permission, costs, budget estimates and loan requirements can certainly help moving things along. 

Many lenders offer free consultations or use models to give you an indication of costs and budget. You may be able to determine what GDV you can borrow at and what percentage of land and building costs can be covered by your loan.

The team at KP Finance will be delighted to discuss your requirements, simply email us today at enquiries@kpfinance.co.uk or speak to Samuel Kalms on 0203 488 1128.

Stage 2 – Make An Application and Agreement in Principle (AIP)

To proceed, you can make a formal application which is typically completed online. At this stage, you will need to provide project information, plans, budgets, personal identification and financial statements.

If you pass the initial stage, the lender can grant you an Agreement in Principle (AIP) which gives you an initial quote, loan amount and repayment figure. This quote is based on what the lender can offer you if all your information and plans stack up. You will need to undergo further assessment, underwriting and due diligence. 

Stage 3 – Due Diligence and Valuation

The lender will carry out due diligence of your project and depending on its level of complexity, this could involve:

• A site visit
• A formal valuation by a RICS surveyor
• Financial checks
• Proof of planning permission
• Proof of costs from contractors (known as a development appraisal)
• Financial viability

Stage 4 – Receive a Loan Offer and Legal Documentation

If the lender approves your loan, you can be presented with an official loan offer which confirms the loan amount, interest rates, duration and repayment schedule. 

You will need to liaise with your solicitor to confirm the terms and allow you to progress with the purchase of the property (if you do not own it). 

The solicitor will double check all other outstanding issues which may be involved with the property purchase including road restrictions, clauses, leases, utilities, subsidence and more.

Stage 5 – Loan Completion and Drawdowns

Once confirmed by the lender and your solicitor, your loan completion becomes finalised and the first tranche of funds can be transferred to you, and this usually covers the land purchase and sometimes, some initial building costs.

Importantly, development finance is released in tranches or instalments at different milestones of the project. This helps the developer to budget accordingly and also protects the lender in case any milestones are not reached.

Stage 6 – Repayment and Exit

Your loan interest is typically rolled up until the end of the loan term and repaid in full upon exit. The exit for a development finance loan could be selling the property for a higher price (flipping it), refinancing under new terms or getting a new loan such as a commercial mortgage or buy-to-let mortgage so that you can rent the property out to tenants. 

Any delays in repayment could incur late fees and penalties and communicating any delays with your lender as soon as possible is wise to reduce any potential costs. It is very common to have delays with construction work, if you hit snags or issues with contractors.

You also have the option to repay your loan or exit early, however, depending on the lender you may be subject to early redemption fees of 1%-2% of the overall loan value.

For any questions relating to development finance or to make an enquiry, please contact our team at enquiries@kpfinance.co.uk or speak to us on 0203 488 1128. 

See also: what is development finance?