Property development finance is not usually used for smaller scale developments like the ones you often see on TV where developers improve a house or flat then sell it on for a profit. Generally this type of work is funded by refurbishment finance or a bridging loan. And we can help with that too.
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.
How much can you borrow?
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 60% loan to GDV, with a maximum of 75% 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 up front 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.
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 which recognise higher land and gross development values.
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 you should do now
Give us a call on 0845 345 6788 to talk through how we can help or take a look at how we've helped property developers access finance recently.