This is, essentially, a short term loan designed to provide some much needed funding for a development project such as the building of a new property or used in making substantial changes to an existing property.
The range of property development projects that development finance can cover are diverse and include but are not limited to the following:
- Housing developments
- Restoration projects
- Apartments and flats
- Retail units
- Part completed developments
- Commercial developments
- Holiday accommodation
- Fitness Centres
There are two key areas-that of new builds and/or refurbishment of existing property. It is important to note that this type of finance will only usually be available for sites with full planning permission. You will need to apply for planning gain finance if you would like to borrow before you receive planning permission.
Who can borrow?
Good question. You will be glad to know that this is wide ranging and any of the following may borrow:
- Private borrowers
- Pension schemes
- Limited companies
- Offshore companies
Individual borrowers must be over the age of 18 years.
In order to apply for this type of finance, you must be able to provide the lender with all of the relevant documents and information including any planning permissions obtained so that the lender is able to assess the viability of the project. Once approval is given, your finance will be arranged. Development finance can be complex and there can be delays if new information comes to light. If you are waiting for planning permission, then our experts can help to arrange your application during this waiting period. The finance will be structured from the outset to ensure that you have the funds when you require them. Once the project has been completed or sold, the lenders will expect the money to be paid back.
Lenders assess the finance they will offer based on the end value of the development once it is finished and this is often referred to as the Gross Development Value (GDV). They will offer a % of this value. We can help you obtain what is called Mezzanine funding which will provide additional funds if required to increase the overall funding. There also other options to look at. Please see the types of development finance guidance.
Key factors that lenders will consider when looking at your application is whether the site is profitable, the build is realistic and whether there is a demand for the development on completion. Lenders will also want to see that you are able to fund the deposit.
WHAT ARE THE BENEFITS OF DEVELOPMENT FINANCE?
There are many benefits of taking this type of development finance out.
1. It can assist you in releasing much sought after funds for other projects you may have.
By taking out development finance, you can put less of your own funds into a project. In these circumstances it is usual to put 10% into a project and borrow 90% on development finance loan. This will mean that you do not have to put any of your savings into a project and instead you can use them for something else including other opportunities that may arise. It also means that you can spread your own funds in different projects which in a way will mean more protection as all of your money is not just concentrated in one project which may or may not turn out to be successful.
2. You can take on larger projects
You can fund much larger and varied projects than your normal budget would allow, which can in turn greatly increase your profits.
3. Increase your return on investment
Property development will increase your return on investment. If you put less money into a project, you will be reducing the profit a little, but you will be obtaining a far greater return on what you have invested. This can only be a plus for you in the long term!
However, there are a few points to bear in mind:
1. Your lender will want to see the site
This will happen every time a payment is due to be released. The person who visits could be a representative of the lender or a quantity surveyor and you will have to take time out to be there with to show the site and development to them.
2. You will need to provide all of the required information
The documents needed to submit your application can be time consuming to produce. The lender will want to see many documents including costings, drawings, planning permission information, details of any past projects you have similarly worked on and will need an application form to be completed.
3. It costs money
Development finance will increase your return on investment, but at the same time it will also cost you money, as the finance will be added as an expense. This can be offset by taking on several other big projects.
HOW LONG DOES IT TAKE?
This is usually achieved in around 6 weeks. If you would like a faster service, then please do advise us
from the outset and we can prioritise your application to make sure you have the funds
within the timescale you require subject to no complexities arising.
In relation to the amount you can take out as a loan –these will usually start from £50,000 with no upper limit. Property development loans are short term loans where the funding is provided in stages throughout the development project. Once this project is completed, then loans will be paid through the sale of property or refinance on to a longer term.
Most lenders will offer a term on average of 18-24 months, with some lenders offering loans for up to 36 months. But please be aware that to obtain such a generous term, lenders will most likely increase interest rate charges and fees.
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