Development Finance
Property development finance is a short-term lending solution used for residential and commercial projects. Property development loans are increasingly flexible, so it’s important to have the right package that is structured from start to finish. Our team of specialist development finance experts can help understand options available and access best investment vehicles/deal structures.
Development Finance
Development finance is typically secured against the property and can include loans, bridging finance, mezzanine finance or other forms of debt funding. All of these forms have different terms which need to be considered carefully before any agreement is made.
We will usually require some level of security such as a charge over the property or personal guarantees from owners and directors. They also often use blanket legal charges to protect their lending interests in case things go wrong during the project and additional conditions may be imposed depending on the lender’s risk appetite and requirements
Throughout the life cycle of a project we will typically expect progress reports in order to ensure that everything remains on track therefore it is essential that projects are monitored closely and kept up-to-date. Developers are also asked to bear in mind, if there are delays or cost overruns during construction then extra funds may need to be sourced from elsewhere due to the limited repayment period associated with development finance loans.
Development finance Example
Let’s say a developer has been identified for purchase of a plot of land with planning permission to build five, four bedroom detached houses. The acquisition cost for the land is £500 k and the cost to build all five houses will also be £500k. The estimated value of each house is £600k giving the Gross Development Value (GDV) as £2.5 million (5 x £500k). In this case, development finance can be used to raise up to 70% (£350k) towards the land cost and all of the build costs (£500k). Therefore, a facility would need to be set up for a total net amount of £850k; with an initial release being made available in order to help fund the purchase and subsequent releases as building progresses. Interest is only charged on funds that have been drawn from this facility.
Development FiNANCE for every business
- Residential property development
- Renovations / conversions/ refurbishments
- New builds
- Purchasing a buy-to-let investment property
- Commercial / Semi Commercial property development
- Single unit developments to large multi-unit schemes
- Development Exit Funding or Sales Period Funding
- Mezzanine development finance
Key Features
Development finance can be broken into two stages, with the first element used to purchase a development site, such as land or an existing property that will be renovated/ developed. The second stage covers the building costs, which are usually drawn in stages as the work progresses. How much is drawn down depends on the value of work completed each month and interest only accrues on the total amount drawn at any given point in time.
Over the course of a project an independent monitoring surveyor (‘IMS’) will be instructed by us to ensure that works stay within budget and timeline. This ensures that the project remains on track and has a greater chance of being successful. The borrower will need to factor into account any fees associated with using an IMS, however this helps to protect both us and the borrower from any surprises arising during construction or refurbishment works which could cause delays or cost overruns.
The key features of development finance also include flexible repayment terms, often allowing borrowers to pay back their loans over a longer period of time depending upon their project’s success. This means that property developers can spread out their repayments when they benefit from rental income but can also adjust payment plans should cash flow become tight due to unexpected delays or issues arising during construction works.
Overall, development finance provides property developers with an efficient way to fund their ambitious building projects without putting strain on their cash flow or disrupting timelines due to lack of capital resources mid-way through planning and construction works. By employing an IMS and providing flexible repayment options, we are able to offer peace of mind to borrowers who have invested heavily into securing sites and commencing works to transform them into desirable residences or commercial properties for sale or rent respectively.
Rates from 0.90%
24 month loans
100% Build costs
Loans from £50,000
Decision in 72 hours
Up to 70% Loan to value
Get in touch via phone, chat or email about your query, however complex it might be. We will try our best to say yes to you, instead of finding a reason to say no.