It’s a loan for the development or refurbishment of residential, commercial or mixed-use properties.

Development finance is provided to experienced builders and developers so that they can raise the funds to turn their building ideas into a commercial reality. Specialist development finance lenders will take the future value of the property (GDV) into consideration when agreeing to a loan.

Development finance is available to property investors, landlords and developers looking to upgrade or build.

When it comes to a commercial mortgage the lenders available would depend on the individual circumstances  of your case and every application is submitted to the lender in order to understand the deposit required and interest rate available.

The term can range from 2 to 25 years either on a repayment or interest-only basis.

Types of finance

• Senior Debt​
• Stretched Senior​
• Mezzanine Finance​
• Equity Finance​
• Land Acquisition / Planning Gain

Scenarios

• Single or Multi Unit Developments​
• Commercial to Residential Conversion using permitted development​
• Barn Conversions​
• Student Accommodation​
• Part Complete Developments​

For lenders, there are two kinds of property refurbishment:

Light refurbishment – This is where no planning permission/building regulations are required and where there is no real change to the overall use/nature of the premises. Common light refurbishments would include a new bathroom, new kitchen, redecoration, rewiring, new windows etc.

Typically, refurbishment finance for standard buy to let houses and flats are available up to 75% of the end value with rates starting from around 5.5%. There are also finance options for more complex properties including HMOs and multi-unit freehold blocks of flats as well as finance for applications made through limited companies or from first-time investors. As you would expect, the more complex the proposition, the higher the rate you can expect to pay.

Heavy refurbishment – This is where there are structural changes to the property and planning permission/building regulations are required.

New build? Conversion? Renovation? Part-build? Property development finance is funding for either major new building projects or comprehensive renovations. We can source finance for residential, commercial and mixed-use developments.

How long can you borrow for?

A property development loan is usually arranged on an interest-only basis and the term of the loan would typically be 6 to 18 months depending on the size and nature of the underlying project.  Usually, the interest can be rolled up into the loan, so there are no monthly payments.

We negotiate finance requirements with a full panel of property development lenders and other financial institutions to provide the right ‘match’ to the project.

When should you apply for finance?

Development funding without full planning consent is extremely difficult to secure unless you are highly experienced and have completed a number of development projects. Before seeking finance it is essential to finalise planning consents and have all relevant documentation available to show your lender.

What sort of rate can you expect to pay?

There are no set rates for property development finance. That’s where we come in. We have access to the whole market and work with a panel of specialist property development lenders and other institutions to find the right match and negotiate the best rate for each proposition.

The lenders assess each application individually and price according to the strength of the development proposition and the borrower. We have years of experience in this field. We know what information should be included within an application and how best to present it for submission.

That’s not to say we can’t give you an idea of what you might expect to pay. At the moment, a good benchmark starts from around 6.0%. Usually, the interest can be rolled up into the loan, so there are no monthly payments.

What paperwork do I need to produce for development finance?

Because of the nature of this type of loan there is a large amount of paperwork required in support of an application because the lender has to take into account the future value and saleability of the project once it is completed and the short-term loan is repaid.

Is a development finance loan the right choice for my business?

Asking yourself a few simple questions will help you decide.

• Do I want a short term loan to help me through my development project?
• Am I confident I’ll be able to repay the loan once the project is finished?
• Can I provide all of the paperwork needed to access the development loan?

Unlike a traditional mortgage lender that will consider the value of the property, a development finance lender will take the value of the completed build into account.

The loan amount is based on a percentage of the gross development value (GDV) at the end of the work, currently up to a maximum of 65% loan to GDV, with a maximum of 100% of the total costs. Typically we work with developers looking for funding from as little as £250k through to projects needing finance in excess of £25m. There really isn’t an upper limit but if you want to borrow a smaller amount, a refurbishment loan is likely to be more suitable.

Loans are normally structured to ensure that the developer’s contribution is utilised upfront with the lender providing the majority, if not all of the build costs. It is usual for funds to be drawn down in stages against architect’s or quantity surveyor’s certificates.

For example:

A developer has planning permission to build three houses with the gross development value estimated at £4.5 million. The total costs involved are £3.1 million, made up of £1.25 million for purchasing the land and £1.85 million in build costs. A lender might agree to development finance of £2.32m (limited to 75% of costs) structured as £320,000 initial advance followed by the balance in stages throughout the build.

Loan to project costs will be influenced by projected gross property development values but funding is available up to 75% of the purchase price and build costs.

It is often possible to organise a loan to finance up to 100% of the property development costs where the borrower already owns the land on an unencumbered basis.

Where the property developer is able to improve the planning consent post-acquisition, we can often negotiate increased levels of funding that recognise higher land and gross development values.

A lender will need to see

• The current value of the property if owned or purchase price
• Predicted end value
• Your build or renovation costs
• The timescale for the development
• CV of experience
• Details of professionals involved with your project
• Copy of planning permission
• Building regulations
• Details of any Section 106s or any planning restriction if applicable