Construction loan / self-build mortgage
Stage-payment loan released as the build progresses (5–7 stages: design, foundations, frame, watertight, first-fix, second-fix, completion); APR 5.8–7.5%; converts to standard residential mortgage on completion. Lenders: Buildstore, Build Loan, Mansfield BS, Hanley Economic, Buckinghamshire BS. LTV up to 75% of GDV (post-renovation value); deposit 25%; arrangement 1.5–2.5%. Best for: substantial renovations >£75k, demolitions, new builds, works exceeding 12 weeks. Approval 6–10 weeks; needs fixed-price tender, drawings, planning consent, structural warranty registration.
Bridging loan
Short-term secured loan 6–24 months; APR 8.5–14%; interest rolled or paid monthly; arrangement 1.5–3%. Lenders: Together, MT Finance, United Trust Bank, Octane, Bridge Invest. LTV 65–75%. Exit strategy required: refinance to mortgage, sale, or expected funds. Best for: auction purchase (28-day completion), unmortgageable property requiring renovation before mortgage available (no kitchen/bathroom, structural defect), chain-break funding. Approval 1–4 weeks.
Cost comparison example
£500,000 unmortgageable terrace purchase + £180,000 renovation = £680,000 project. GDV £950,000. Construction loan: 75% LTV of GDV = £712,500 max; APR 6.8% over 18 months → interest ~£42,000; arrangement £13,600. Total finance cost ~£55,600. Bridging: 75% LTV of £680k = £510,000; APR 11% over 18 months → interest ~£71,000; arrangement £15,300; exit fee £8,500. Total finance cost ~£94,800. Construction loan ~£39k cheaper but 6–10 weeks vs 1–4 weeks to arrange.
When to choose each
Construction loan when: time allows (6–10 weeks to arrange); existing property or post-purchase renovation; works £75k+; want lowest borrowing cost; will refinance to standard mortgage on completion. Bridging when: speed matters (auction, urgent purchase, chain-break); property currently unmortgageable; short-term gap; exit via sale or refinance within 12–18 months; willing to pay 4–7% extra APR for speed. Hybrid: bridge to purchase, refinance to construction loan when consents in place — sometimes optimal but adds arrangement fees.
