£26K to £25m
What is Property Development Finance?
Property development finance is a specialist type of finance which can be used to fund the purchase, construction, conversion or refurbishment of buildings or land.
Designed to be used when a conventional bridging loan is too short term or cannot offer the capital needed to progress a project, it is a specialist product designed around the timescales and financial requirements specific to the construction sector.
For example – if a borrower is looking to purchase land with planning permission to build 10 luxury residential properties, they may first consider a bridging loan. However the costs of construction would exceed the value of the only asset they have (the land), and the short time scales inherent in bridging loans would not offer the time needed to successfully finish construction – meaning that a bridging loan would not be a suitable choice for development finance in this scenario.
The correct choice of funding would be to utilise a commercial property development finance loan. Offering larger loan amounts over an extended term allows developers the time they need to build the properties the market is demanding and answering the question of how to get finance for property development.
At the end of the building or refurbishment project, the property development finance facility is normally repaid through sale of the properties or through a re-finance agreement.
The interest rates on a development finance loan will depend on the size of the project which is being funded, the value of the security on offer, the value of the property once building work is completed and the amount of money being borrowed.
Experienced property developers with more established track records will generally benefit from the most competitive interest rates for development finance funding. However, we are happy to work with first time property developers and will make a lending decision based on the strength of the proposed project plan.
We are specialists in property development finance – that’s all we do. With whole of market access, same day in principle decisions, loans from £26k to £25m, and a passion for what we do, we believe we are the only funding partner you need to work with you on your project.
Please contact the team on 01202 612934 to find out more.
What is the terminology around property development finance loans?
Borrowers looking to secure a development finance facility will have to consider a range of different factors, referred to as the acronyms LTV, LTC, and LTGDV.
The Loan to Value (LTV) is the ratio between the loan amount and the value of the site or building the buyer wishes to purchase prior to development. The Loan to Cost (LTC) refers to the ratio between the loan amount and the construction and associated costs on the project. The Loan To Gross Development Value (LTGDV) is the ratio between the loan amount and the estimated future value of the property being developed, once it is complete.
All these ratios are key factors that the lender used to determine their funding decisions.
The different types of property development finance explained
A range of different development finance loans are available to potential borrowers. Most development finance will provide borrowers with up to 70% of the value of the land or existing property they are looking to buy prior to development – and up to 100% of the build costs.
However, the size and complexity of the development project will ultimately determine the best available funding solution, and which is most likely to maximise the return on the borrower’s investment.
When you work with us our experts will advise on what we believe is the correct funding option for you and the lender best equipped to help you progress your project.
Some of the different types of property development funding to consider are:
Senior property development finance
This is used by developers and house builders on larger projects such as the construction of housing estates, business parks, and student accommodation.
Stretched senior property development finance
This offers a higher LTV/LTC/LTGDV than standard Senior Development Finance, allowing developers to start work on a project without as much upfront funding.
Mezzanine property development finance
This can be used to bridge any shortfall between the cash developers have available for a project and the funds offered to them by a lender. Shortfalls like this can prevent a developer from starting work. Lenders will require the second charge over development projects which benefit from this form of finance.
Super stretched property development finance
This allows borrowers to proceed with the lowest amount of upfront cash for a project possible. It combines both a stretched senior development finance and a mezzanine funding solution.
As well as requiring less cash in advance to start a new project, super stretched development finance packages can also be used when a developer is working on two or more other projects at the same time, to help manage cash flow and expenditure.
Build to let property development finance
Build to let projects are one of the fastest growing construction activities in the UK today. The residential units on a build to let projects are intended to provide an ongoing rental income stream to the developer – rather than being put up for sale to tenants, landlords, or investors.
Commercial property development finance
Developers can use commercial development finance to fund the construction of both commercial and semi-commercial building projects. For developers who are intending to rent out a commercial property to business occupiers, there are also funders who will work with borrowers even if there is no pre-let in place.
Light property development finance
Light development finance is used to fund smaller development projects including ground-up developments of two units or more, permitted developments, change of use conversions, and heavy refurbishment projects involving major structural work.
Property development exit finance
This is a form of bridging loan used by borrowers to repay a current development loan before they have sold the property and before they have arranged a commercial buy-to-let mortgage or if the property has not yet been completed or sold.
These tend to offer a better return on investment as charges on exit finance are generally lower and they also allow a quicker release of capital for other projects.
Self-build property development finance
Borrowers can finance the construction of a brand new property with self-build finance. This can include property on undeveloped land from scratch or splitting the title over land and property to create a second property.
How much does property development finance cost and how do I apply?
Every quote we give for property development finance is unique and tailored to the project itself.
We know how to finance property development and as we have access to lenders across the whole of the market, we can pair you with the lender specialising in your sector and who are best placed to offer you the most competitive development funding for your requirements.
If you need to speak with us about development financing, please call us on 01202 612934 or email our team at info@finbri.co.uk.
