What is a property development loan?
Property development finance is funding designed to facilitate either new builds, part-builds or comprehensive renovations. Property developers, investors and landlords often call upon this alternative type of finance to give them the capital they need to proceed with their project.
For smaller refurbishments that are generally just aesthetic in nature, bridging finance or short-term refurbishment finance may be a better option.
What is commercial development finance?
As the name suggests, this term refers to funding that is to be used towards the building or refurbishment of a commercial development, such as shops, hotels, offices or industrial units.
How are the funds distributed?
Property finance loans are often drawn down in phases, as the development progresses.
More often than not, the developer will contribute the upfront land costs while the lender will provide the build costs (or a percentage of the build costs). Additional stage payments will then be delivered at regular, pre-agreed intervals to cover the ongoing costs of the building work being undertaken.
How much can you borrow towards building or renovation work?
The total amount you can borrow will be based on a percentage of the gross development value (GDV) after all works have been finalised – aka, the expected market value of the property.
Finance is typically available for up to 75% of land and build costs and/or 60% of GDV. On occasion, however, we have been able to raise 100% of land and build costs by successfully securing Joint Venture (JV) development finance agreements for our clients.
At largemortgageloans.com, we typically work with those looking to fund development projects valued at upwards of £2million.
What are the standard terms of this type of loan?
Property development loans, whether commercial or not, usually have between 6 to 24 month terms, subject to the scope and type of project. Development loans are usually arranged on an interest-only basis with the interest rolled up into the loan, so no monthly payments are required. The exit on this type of loan is generally sale of the property.
How much interest can you expect to pay on your development finance?
The interest rates will ultimately be determined by the type and the size of the project you wish to invest in, along with the loan to ground development value.
Rates for development finance can often be negotiate, as lenders will assess each case differently depending on the circumstances, also taking into account arrangement and exit fees.
Are you eligible for development finance?
Experienced property developers are more likely to be accepted for property development finance – but that’s not to say that lenders won’t consider those who are embarking on their first renovation project. The application is more likely to be successful if:
- The investor or developer can prove that a professional team will be overseeing all works
- The investor or developer has estimated all likely costs, considered the end value of the property, and calculated all prospective profit margins, therefore ensuring that the project is viable with strong compiling evidence.
How can we help you arrange suitable development finance in the UK?
Our team of specialist finance brokers can source development finance for residential, commercial and mixed-use projects. We’ve spent the last 15 years helping new and experienced property developers find the finance they need to start and complete their developments.
We have significant experience in arranging property development funding and we have an in-depth understanding of how to present your individual case to each lender to secure the best possible outcome. We will follow the application process to the letter, submitting all necessary drawings, plans, budget forecasts and a schedule of works to the lender to ensure the best chance of a successful application.
We have unlimited access to the market and have relationships with a panel of specialist property development lenders and other institutions, which means we’re in the perfect position to find you a tailored solution. At largemortgageloans.com, we deliver truly independent solutions through our relationships with over 200 finance providers, providing proactive advice while dealing with all aspects of our clients’ circumstances. We aim to make arranging your property development finance simple and easy, however complex your needs may be.
For more information on how to finance your next property development, or to discuss your options with a specialist broker, contact us today.
Please note that The Financial Conduct Authority does not regulate some aspects of commercial mortgages or business finance.