Development Finance

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Development Finance

What is property development finance?

In plain English it is a loan which is designed and built for property development and would be secured against the land and property being developed on site.

The developer may borrow money to assist in the purchase of the land on which the site would be built, which could be either residential or industrial, and would then have access to further funds upon which they could draw down at each agreed stage of the development.

The planned stages of development would be agreed up front with the lender. Prior to draw down of funds at each stage, the lenders surveyor would carry out an inspection to make sure the works had been carried out to a specific standard.

In recent times we have seen a whole new generation of Specialist lenders entering the finance market who are very keen to do business, offering increased levels of flexibility that has been missing from our High street lenders.

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How is property finance used?

The most common use is for the development of residential housing schemes (including Private Rented Sector, or “PRS” schemes, and Affordable Housing or Social Housing schemes) of any size, in any location in the UK. In addition, lenders can also fund mixed-use schemes, commercial schemes, student accommodation (including Purpose Build Student Accommodation schemes, or “PBSA” schemes), hotels & leisure, retail, industrial schemes, Permitted Development Rights schemes, and so on.

We can facilitate the most appropriate property development finance options for Senior Debt, Stretched Senior Debt, Mezzanine, Equity and even Joint Venture finance. So, whether you are looking for the best rates, or the highest leverage, we can help.

In addition to whole of market coverage of development finance lenders, we have access to some private lines of finance. We have been in the financial services arena for many years and have build up our knowledge and experience overtime.

With so many lenders in todays market there are a number of variations in the manner in which lenders express the way in which they assess a case and what they will lend against, so it is worth spending a little extra time to make sure you be receiving the full amount of funds requested.

Development Finance Questions and Answers

What is the lending criteria for property development finance?

Detailed Planning consent needs to be granted (or Outline Planning with some reserved matters).

Development Experience is essential for larger schemes. Some lenders will fund “first-time” developers.

Fixed price contracts with main contractors are preferred, but not always necessary.

Most property development finance lenders do not expect pre-sales to be in place.

A clean & clear credit profile helps, and is essential for the most competitive lenders, however adverse credit is considered by some lenders.

A valuer will be instructed to comment on the current site value, the proposed GDV, along with appropriate market commentary.

A Monitoring Surveyor or Quantity Surveyor will be appointed by the lender, to audit the proposed build costs, to monitor progress on-site, and to assess draw-down requests for your building development finance.

Draw-downs are in line with the build programme and cash-flow, to be authorised by the lenders monitoring surveyor.

Commercial Property Development Lenders will generally require a pre-sale or pre-let to be in place.

The Key Features of Property Development Finance

Loans from £100,000 with no maximum amount

Loans up to 75% of GDV or 90% of the project costs

100% of Development finance with additional security

Development finance rate vary considerably, however the retained interest and the majority of fees are rolled up within the facility.

There are options with no exit fees

The term would not normally exceed 24 months, unless by prior agreement

The security would be on a first charge basis

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Relevant Products

Fixed Rate Mortgages

We can help with a range of fixed rate mortgage products with competitive rates and terms.

Tracker Rate Mortgages

If you are looking for a mortgage with a rate that follows the base rate set by the bank of England – we can help.

Capped Rate Mortgages

If you are looking for a Capped Rate Mortgages we can help, we have access to a wide market of lenders who can help.

Bad Credit Mortgages

If you have bad or adverse credit we may be able to help you secure a mortgage – from IVAs to CCJs we can help.

Standard Variable Rate Mortgages

If you are looking for a standard variable rate mortgage with competitive rates & terms we can help.

Repayment Mortgages

We can help with repayment mortgages – you’ll make monthly repayments for an agreed period of time on capital & interest.

Can I get development finance?

This is where we, as experienced finance brokers are invaluable, with our experience and knowledge of the development finance market. Once we have established your needs and requirements, we can then do our research to find the most appropriate lender. We will need to see a detailed Financial Appraisal, Detailed Build Costs and a Cash-Flow, the Planning Consent (and accompanying plans/ drawings), an understanding of the procurement method (will you be using a Main Contractor on a Fixed Price JCT, or will you be building yourself, using your own team?), a schedule of the proposed accommodation (number of units, size, beds/ baths) and a breakdown of the proposed selling prices, to give your total Gross Development Value. We will package the details and make a presentation to the relevant lenders, who will then provide us with Heads of Terms, outlining what they are proposing to offer, and at what cost.
We will of course make you aware of the likely terms available as soon as we can, enabling you to start the process.