Property development loans allow developers to forward fund the purchase and ongoing costs of developing property which is then to be sold on at a profit loans for property development are offered by both banks, financial institutions and also lenders who use investors funds offering them a better return on their capital than either bank interest on deposits or other investments they may hold, these include residential property development loans and also commercial and or a mix of both as in development that would include say a small commercial element such as a shop or ground floor office, with commercial mixed loans it is important that the commercial portion is not more than 40% of the overall floor area that is to be developed, if it exceeds 40% than it would be considered a commercial development, which would be much harder to fund as any lender would seek assurances that the commercial element has a buyer willing to exchange contracts and or a lease agreement of at least 10 years with a strong covenant who will be taking on the lease in which case a property development loan would be available. Property Development Loans UK can source loans for properties anywhere in the UK.
Residential development loans are available from over 100 lenders in the UK, each focusing on either a location of the country that they feel most comfortable with, this could be in or around where they are based or simply a location where they have offered a loan previously and the developer sold out the scheme quickly due to high local demand for the type of properties that had previously sold. These could be traditional family houses which are always in demand or it could be apartments in a location that has seen similar developments of apartments that have sold successfully.
Lenders also have preferences based on the amount they lend with the sweet spot being loans of £300k up to £5m anything below £300k can be funded but would be seen more as a refurbishment or self-build development. Over £5m funding can also be arranged but the number of lenders willing to offer loans at this level is significantly less.
Residential Development Loans what experience is required?
We deal with lenders who will offer loans to all types of property developers this would range from a developer who is looking to complete their first development up to a full experienced developer who had completed and sold many schemes in the past. As with location lenders have their preferences of how much experience they would need to see from a developer. Because there are so many lenders in the market now they have all carved out their little niche areas.
One thing all lenders would want to see is a professional presentation of the proposal outlining all of the costs that are likely to be incurred and also proof of similar properties that have sold previously. They would also want to see a cv for the proposed borrower that shows some degree of knowledge of the property industry or just a good business acumen which gives them comfort that you will be able to complete the development and keep a good control of costs so that the project does not go over budget. To this end they could ask for cost overrun guarantees from you this basically means that if you go over the agreed budget for the development then you would be expected to cover the costs from your own funds, only in exceptional circumstances would a lender offer to release extra funds on a development that has gone over budget and in the situation they would more than likely ask you for a personal guarantee to cover the extra funding be offered.
What are the Interest rates for Residential Development Loans?
Interest rates start at from 4% p.a however this would be for an experienced developer with a previous track record of building out and selling a number of similar schemes to the one that they are looking to fund a more realistic expectation would be to factor in anything from 6-8 % for your average development projects that are deemed out of the ordinary or in a location that is only average could be more.
Also, the loan to value will affect the interest rates that are on offer to you the higher the loan to value the more risk a lender is taking on in offering a loan based on the security of the land/property the lender will appoint a surveyor to do a valuation. Basically 60-70% of all the development costs would be considered the meridian loan to value which most lenders are comfortable with any higher and the interest rate will increase accordingly, there are a number of lenders who will offer loans of up to 90% of all costs but you will then be moving into the 8-12% pa bracket, it all really depends how much capital you have to put into the project and what works for your proposal.
We would look at your development proposal in detail for you check that everything's in order and then submit only to lenders that would be interested in offering a loan for your development. Once any offers are made we will then go through them in detail with you and see which one offers you the best deal.
Call us today we are open 24/7 to take your call or put an enquires through our web form and we will call you back to discuss your proposal in detail with you.
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Development Loans are 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.