Property Development Financing Key Facts

From buy-to-let mortgages to auction finance – property developers & house builders have a range of funding options available for their next project. A popular choice are property development loans.

The attraction of this type of property development financing is that it allows borrowers to access large amounts of capital throughout the timescales of a typical development project. They also offer a degree of flexibility in terms of how they are paid out, how they are re-paid & the types of borrowers who are eligible to receive them.

What Are Property Development Loans & How Do They Work?

Property development loans are finance agreements offered by specialist providers that can be used for new building projects or for conversions of existing property. 

They range in value from £26K upwards with no upper limit as to how much can be borrowed & can even be used to cover the entire cost of the construction if the project is deemed viable.

Property development finance can be used to buy or renovate both residential & commercial spaces, including houses, apartments, shops, offices, & industrial sites – either for investment purposes or for owner occupation, at the end of the loan term. 

The funds from the development loan are gradually released to the developer during the construction or refurbishment project, starting with a transfer of initial funds to kick start the construction through to regular payments until completion.

Who Can Access This Form Of Property Development Financing?

It doesn’t matter if the borrower is an experienced developer looking to make a profit for re-sale or a budding first-timer wanting to build their own home – property development loans are available to all.

Lenders look for two things when they consider development loans. The first is how much security the borrower has available for the loan, & the second is how commercially viable the project is.

They need to know when you will achieve the key development phases of your project, what experience you & your team have, & that you have all necessary permissions from the local planning authority.

For those who have no experience, it is very important you surround yourself with experienced professionals who have a proven track record in the type of build you are borrowing funds for.

How To Apply For Property Development Financing?

The process of application for developing lending normally starts with an initial enquiry & consultation with an independent broker like us. We have access to development financing deals from over 100 UK lenders & will work with you to put forward the strongest possible business proposal & application for finance. 

When we have found a lender that offers the best terms for your project, we pass your details through to them. They will then arrange a site visit to establish the feasibility of the building works & feed this information into an independent valuation of the project from start to finish. 

Once a value has been agreed & approved, you will be issued with a formal loan offer which needs to then be agreed by all parties. At this stage it can also be helpful to engage a solicitor to support with any legal advice.

Once the paperwork is signed, sealed, & delivered, the first drawdown payment will be transferred shortly afterwards, followed by the agreed instalment payments throughout the project & up to the completion of the building work.

What Are The Typical Terms With Property Development Funding?

The size of a development loan really depends on the cost of construction & the borrower’s individual circumstances. 

Typically the value of an average property development finance is around half the purchase price of the property or land – but in some circumstances it may be possible to borrow the full cost of the purchase & build. 

We can provide 100% developer financing. Call us on 01202 612934 or send us a Quick Enquiry for further information regarding this.

The term of the loan can be up to 36 months & exit is normally secured based on the sale of the new or refurbished properties at the end of the project, or by a new refinancing agreement. 

If it suits the borrower, property development financing can usually be repaid fairly quickly, keeping overall borrowing costs to a minimum & making the loan more affordable than many other long-term development financing options.

There is usually an exit fee upon completion of the loan term, which is a percentage of the total value of the project. However if the project completes ahead of schedule, early repayment of the loan is normally possible, without having to pay any charges. 

How Much Does Property Development Financing Cost?

Fees, charges & general borrowing costs for a property development financing tend to vary significantly from one lender to the next, & from one project to the next.

Due to the riskier nature of development loans, the interest on property development financing tends to be higher than standard lending products & may take slightly longer to be agreed.  A 7% annual interest rate is achievable as are monthly rates of 1%, but while longer-term facilities may offer lower rates of interest to borrowers, these can still cost more over the long term than those that are repaid quicker. 

With a development loan, the interest is only charged on the funds released which again can impact the overall costs of the facility in a positive way. As funds are released in stages throughout the project cost overruns are less likely, which is a significant benefit for many developers.

In terms of fees, there are several charges that need be considered. Legal fees, draw down fees, & valuation fees all have to be factored in to the cost of a loan, & in some case can be significant. Working with an independent broker such as ourselves will help minimise these fees as well as the overall cost of the loan over its lifetime. 

How Are Property Development Loans Secured?

These forms of property development financing are normally secured against the value of land that the development is being built on. If funds are required that exceed this amount, then other properties owned by the borrower can be used as additional security. 

One of the particular benefits of financing for development in this way is the ability to secure money on land & properties that might otherwise be considered unsuitable or unviable by other lenders, such as rundown & derelict buildings.

All these considerations will be looked at by the lender when considering the borrower’s exit strategy at the end of the term loan. It’s vital that property developers can illustrate how they intend to repay the property development finance either through the sale of the property, rental of the property or long-term refinancing of the property.

Get The Best Rates For Property Development Financing 

Applying for property development loans is a time consuming process that requires significant expertise to ensure you get the best possible rates available. An experienced development loan broker knows which funders are most likely to approve your application & how to prepare your proposal so that they consider it in the most favourable light.

We are such a broker & our highly experienced team of property finance specialists have helped arrange over £200m of development loans UK wide in the last 12 months.

To see how we help you now with your funding requirements please complete our Property Development Loan Calculator, send us a Quick Enquiry or give us a call on 01202 612934.