Property Development Finance is a short-term finance option, used to develop either an existing building, i.e. refurbishment, conversion, or a new build. Development Loans are usually taken over a period of between 6-24 months. This really depends on the type of Development; with a light refurbishment it would be as low as 6 months or less, and with a larger scheme up to 24 months, however nearly all lenders would offer a 12 month period to begin with and then extend the loan by a further 6 months if you were having difficulty selling the properties or needed extra time to complete the development. On average it takes 9 months to build a single property and even if you are building five or more the lead time should never be more than 18 months from start to finish.
The thing to remember with any Development Funding is that you will need to allow for a re-sales period to be factored in to the loan period. If you do not take this into account and your properties have not sold within the agreed loan facility, you could end up paying another arrangement fee to extend your Development Loans this could be 1% of the loan amount agreed with the lender.
Property Development Finance Explained.
Property development finance is a short-term funding solution of commercial finance that is used to develop property or land to sell on for profit some developers also use bridging loans to fund their developments as many bridging finance companies now offer property development finance at very competitive interest rates.
Funding solutions for property development loans a quite different to a traditional loan or mortgage, as they are paid out in stages according to how much work has been completed. Finance packages for development funding would typically offer to cover 100% of the construction and associated costs with the balance going towards the purchase price of the site. So if for instance, you had a development loan of £500k rather than the loan being paid in one go it would be paid in stages first as a percentage of the land/site value, with the rest paid out as and when your development project reached certain construction stages.
We are specialist in helping clients obtaining development finance, as such we can quickly identify if your project is viable and at what sort of level we could get funding for you, also what the likely interest rates and associated costs would be.
How much can be borrowed for a development loan?
Typically we arrange for amounts in excess of £150,000. The maximum amount that can be borrowed is heavily dependent on the value of the security and the value of the project at completion if you are looking for refurbishment finance for a single property then loans are from £50,000 these would typically be offered by specialist lenders and include bridging lenders.
Can I take out a development loan with a loan-to-value of 100%?
It is most certainly possible to get development loans where the loan-to-value (LTV) is 100% with an additional security or if, for instance, you had some land that you had gained planning on and the value has increased then a lender will take into account this when looking at the loan.
Where do you lend?
We can provide development loans anywhere in England, Wales or Scotland sometimes in Northern Ireland but the scheme would need to be in a prestigious area with a good record of sales that support the valuations.
How much is previous development experience required?
It is preferable for most lenders that the borrowing developer has a track record of successful developments before they take out a loan with them. Despite this, it is still possible to obtain developer finance without much experience depending on the circumstances. Lots of lenders would be happy to work with first-time developers as long as there is an experienced team surrounding them, such as reputable builders and they have a strong commercial background they would meet the prospective borrower first to see that they are approaching the project in a professional way and intend to sell the properties on completion. A previous developer who retained all of the properties they have built would not be considered experienced only one who had completed and sold previous schemes.
Can I borrow with poor credit history?
It is still very much possible to take out a development loan with poor credit history. In the majority of cases, lenders will overlook these issues. Factors that affect the loan more include the project itself and the team working on the project. Lenders mostly look for an experienced team working on the project. This can include builders who have worked on many projects in the past. If there is a suitable security and the development project is worthwhile, most lenders will still lend to developers with bad credit histories. Despite this, lenders will still be vigilant to determine whether situations such as CCJs will affect the loan and may not pay out to people with excessive prior issues, if a borrower has CCJs then the lender in most cases would expect them to be paid off before advancing the loan.
Can finance be arranged on land without planning permission?
A development loan can most certainly be taken out on land that is yet to receive planning permission in most cases. As long as development will be possible, the amount of money that can be lent depends on how much that land is worth. More money can be lent after planning permission has been received too, so it is definitely a viable option for developers that haven’t got planning permission yet, obviously it also depends on what planning is likely to be approved and the location and type of housing.
What term length is provided for property development loans?
Typically, the length of term for a development loan is 1-2 years, giving enough time for the project to finish and be sold. Longer loan terms can come with higher costs and if funding is needed for longer than two years, it may be necessary to utilise a different form of finance for the project.
Can you offer finance to limited companies?
Finance is available to Limited companies as well as lending to individuals, and also partnerships in fact development finance is available to any legal entity, most professional property developers set up an SPV Special Purpose Vehicle this is basically a separate limited company for each development they do what this does is ring fence the development should anything go wrong by doing this you are only responsible for the loan on that one site offering protection on your other assets. Development lenders also prefer to lend to an SPV as it also protects their asset from any other claims, if you carry out a development in your personal name then if anything should go wrong a lender could have a claim on your other personal assets, it’s ok if you are just building or refurbishing a single property but for anymore we would always recommend using an spv for the development. With a refurbishment project a better way to fund it would be through a Bridging Loan, thes offer finance form £30,000.
What property types and projects do you lend on?
We have a large array of scenarios we can provide development loans for. This can include residential, commercial or semi-commercial property as well as new builds, refurbishments, renovations, and conversions. Each case is reviewed individually by our team so contact us and we can discuss the situation and the availability of our property development loans for you. As a rule of thumb residential is always a prefered choice for a loan, but they will also lend against a commercial development if you have a clear exit strategy such as an agreed sale or long term lease in place of 10 years or more with a strong covenant. Loans are secured against property or land.
What kind of fees are their for a Property Development Loan?
Besides the monthly interest rate, there are other less obvious charges. An arrangement fee of around 2% is typical plus the agreed interest rate which will be quoted as a monthly these range from 4% with a high street lender up to 8-9 % if you need a high loan to value high street lenders will go up to 60% of cost but using a specialist lender up 90 % of all hove your costs is available. It really depends on how much cash you have and your circumstances. Note a high street bank will also require an exit fee of between 1 and 2% of the end value of your development so you have to examine each offer carefully to see which offers you the best value. One thing to bear in mind is that specialist lenders do not charge any exit fees just arrangement fees which can make them more competitive overall.
In addition to the the above fees for your property development loan you will have to factor in both your own and also the lenders solicitors fees these are agreed before you accept the offer and start at £500.00 for the lenders and whatever you solicitor quotes you to do your legal work.
Finally you will have to pay to have a formal valuation carried out by the lenders surveyor this will include what the end value of the properties are and going over your proposed costings to make sure they are all achievable. Valuations start at £300 and increase in accordance with the end value of the development and also the total loan amount that they will be advancing to you.
How fast can I receive a decision in principle (DIP) for a Property development Loan?
We can typically provide a decision on the loan in as little time as 1 hour we just need to have a quick chat with you over the phone and go through your numbers, contact us via our website or telephone us 24/7 to get your development moving.
Note development finance is not covered financial conduct authority or FCA regulated.
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Development Funding is from £50k up to £5m and we can get funding for both first-time developers and also developers with a track record. Loans are also available anywhere in the UK.