Development finance lets you borrow to build and renovate property. Our expert team will help you understand how it works and what to consider.
What is property development finance and how does it work?
Development finance is a way for property developers to fund their projects – their build costs and the land. It’s suitable for property conversions, refurbishments and large scale building projects. Development finance is used to fund multi unit residential properties, new builds, commercial/semi commercial property development, student accommodation etc. It can be used for single properties or multi-million pound ventures, even if they are already in progress.
To get property development finance you need to find a suitable lender that’s happy with your development plans. They will be interested in the Gross Development Value (GDV) for the project, which is how much the property will be worth once completed, and your experience as a Developer.
Generally the funds will be provided in phases and in arrears. You show the lender what’s been completed and they release the next phase of funding.
If you are building a property to live in, a self-build mortgage may be a better option. (Link). There can be cross over with bridging finance (Link).
How much can be borrowed with development finance?
The amount you can borrow is based on the GDV of the finished project. Lenders typically offer around 60-70% of the GDV and up to 100% of the total build cost, especially if the total loan is less than 60% of the GDV.
Who is eligible for Development Finance?
You can apply for development finance as an individual or through a company. It is much easier to secure finance if you already have a good track record of successful developments.
If you haven’t developed property before it’s helpful to show that you have previously repaid borrowed funds on time. You’ll also need a detailed proposal to reassure the lender that your project is viable and an experienced project delivery team and o provide a clear exit strategy for the loan. Exit strategies normally include sale of the finished property and/or refinancing.
Can I get 100% development finance?
Lenders tend to provide up to 70-75% of the funds needed for the initial site purchase and up to 100% of development costs – but you will usually need to be an experienced developer for this.
On your first development project, lenders might require you to pay 50% towards the purchase of the land. You may be able to borrow more by securing the loan on other property or assets. We can help you to explore all of your options.
It may be possible to borrow more than this with additional security, particularly if you are high net worth, so please get in touch to discuss your personal circumstances (CLICK HERE)
How much does development finance cost?
Interest rates tend to be set on a case by case basis, looking at your project and your personal characteristics including development experience.
A good broker will ensure you get the best deal available – we will make sure your proposal is sound and will negotiate on your behalf. Development finance sometimes includes an exit fee, payable on completion of the project.
Speak to an expert
We will work at times that suit you and your family, carrying out appointments via video call, telephone or email, giving you the benefit of first class service, around your own schedule, and in the comfort of your own home. So let us handle your mortgage today and find out how well we can look after you, The Mortgage Mum way!
When do I need to repay a development finance loan?
Most development loans need to be repaid between six months and two years, as agreed upfront. The length of the loan will be set in line with the timescale of the development. The longer it takes to repay the loan, the more interest and potentially fees you will pay. Interest payments are normally rolled up and repaid when you exit the loan but can be serviced monthly.
What are the pros and cons of development finance?
Even if you have funds available to complete a project without finance there are still benefits to exploring a development loan. It is a fast source of money to fund your project, and you will receive the money you need at each stage of building, giving you cashflow.
Development finance potentially allows you to take on larger projects than you have funds for and thus achieve increased profits. It also gives opportunity to manage multiple developments at the same time by restricting the amount of capital investment needed from you as an individual or business.
On the downside, the cost of borrowing can be quite high – interest rates are more than on a typical mortgage, so it’s best to use this type of finance as a short term loan. You may be able to refinance to a mortgage in the long term.
It can be challenging to compare the different fees and interest rates and there can be a lot of information which needs to be provided to the lender to give them assurance in offering the loan.
That’s why it’s so important to work with an experienced broker to help you navigate through the market and present things in the best way to the lender.
How do you get development finance?
Applying for development finance can be complicated, but we’ll help you through the process and make things as easy as possible for you. We’ll explore your plans and make sure that you meet all the lender’s requirements, saving you time and getting you access to funds as quickly as possible.
We recommend the most suitable options, individually negotiate with lenders and check all details so that the application goes through smoothly.
What if I have bad credit?
Bad credit isn’t necessarily a barrier. It does depend how serious and recent any credit issues are. You could also overcome bad credit by reducing the total loan amount or paying higher interest rates.
How can The Mortgage Mum Specialist Finance help?
If you’re considering a property development project, come and talk to an experienced advisor. We’ll advise you on how best to achieve your plans and what you will need to secure a competitive deal.
We’ll also ask about your team – it’s so important to make sure you have good builders and other specialists on your side. We’ve supported development projects of all kinds and regularly advise clients on their borrowing options. We work with both specialist and high street providers and would be pleased to help you, whether this is your first project or you are a seasoned developer.