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Development finance rates from 0.83%

There are many obvious advantages when it comes to utilising property development finance to fund a project. Even if you have the amount of cash needed already available, it is worth looking at the benefits of a development loan for at least part of the project.

The pros of development finance include:

  • Having access to funds for property development purposes allows borrowers to take on bigger projects than they would usually be in a position to finance.
  • It helps to maintain a healthy cash flow until the development has been sold.
  • Funding for many projects eliminates the need to wait for one to sell before beginning the next. Access to critical cash will guarantee that you do not miss out on any potential development possibilities.
  • The lower the capital invested in the project, the greater the return on investment (ROI). You must consider financial expenses, which will be deducted from earnings, but because your personal investment is lower, the return on investment will be higher.

Types of Development Loans

When looking for property development finance it is important to identify the type of project being planned by the developer in order to access the correct funding product. Types of works can include:

ground up build development finance

Ground up builds

New builds nearly always require development finance loans. Once the project is completed, developers may use development exit finance as a more cost-effective solution, but this cannot be done before the project is watertight.

property conversion or restoration finance

Large scale restoration and property conversions

To accommodate this type of project refurbishment finance is typically the correct type of loan to use, however if the project is larger than the norm, development finance may be a better alternative.

property refurbishment finance

Property refurbishment

A refurbishment loan is a type of bridging finance generally used for property renovations. It can be used for various improvements including, installing a new roof, general structural changes, building an extension, refurbishment, and decoration.

bridging loan property development

Bridging loan for property development

Property investors or developers may want to buy property which needs development or completion work still doing and are unable to get funding from their bank. This is a typical scenario when a bridging loan is a suitable alternative.

How is Development Finance Repaid?

Development finance loans are typically paid in one of the following three ways:

Paid in full

The total loan amount is paid in full, using the profits, when the project is complete, and the properties have been sold.

refinance with long term loan

Refinancing using a long term loan

This usually happens when the developer wants to keep the development for either personal use or for rental purposes.

development exit finance

Refinancing using a Development Exit Bridging Finance

This type of short term loan is often used to fund a new development project before the current project is sold. It can also be used to give developers a bit of breathing space to complete minor works and find buyers.

Frequently Asked Questions

How does the development finance process work?

Infrastructure, housing, and commercial assets are just a few of the things that can be improved or developed through the process of development finance. Large-scale projects with the potential to raise economic growth, add employment to the local area, and improve a region's well-being tend to utilise this financing.

The process in the UK for development finance is a comprehensive and structured approach to funding and executing projects that contribute to economic growth and community development. It involves a combination of public and private funding sources, careful planning, and on-going evaluation to ensure successful project implementation and long-term benefits. Here is a description of the UK development funding procedure:

  • Identifying a development that fits with the objectives of local authorities and/or private investors is the first step. These projects can be achieved in different forms, such as creating new housing developments, improving transport systems, or reviving metropolitan neighbourhoods.
  • Secondly, a study (commonly known as a feasibility report) should be conducted with the goal of assessing the economic viability, any potential risks, and likely benefits should the project bear fruit. Financial projections, market analysis, and a cost-benefit review will be determined to judge the viability of the project, and whether it is indeed worth pursuing.
  • After the feasibility report is provided, project developers will explore various financing avenues. For projects taken on within the UK, these options may include public funding from government bodies like the National Infrastructure Commission, private sector investment from banks and other lenders, or a combination of the two if necessary.
  • A planning and approval process is then undertaken for the project. This process would involve obtaining any necessary permits and clearances from local authorities to proceed with the project. This is a vital and required step to ensure that your prospective project complies with all and any regulatory requirements and upholds the environmental standards that it must meet.
  • Once approvals are secured, the developers seek financing from relevant sources. Funding may come from public entities such as a government grant or bonds, while private financing can involve specialist lender loans, equity investments, or partnerships with private developers.
  • With the necessary funds in place, the project can move forward. Construction and development activities commence, with careful monitoring and quality control throughout the process.
  • Effective project management is crucial to ensuring that the development progresses as planned, stays within budget, and meets the specified timelines. Project managers oversee various aspects, including construction, procurement, and stakeholder communication.
  • Monitoring and evaluation throughout the project's development will be essential to track not only the project's progress, but to also assess its impact on the community in line with the targets set out initially. Adjustments may be made as needed to address unforeseen challenges.
  • In the case of private financing of any projects, the property developers will need to repay loans or provide returns to their investors once the project starts generating revenue or has finalised completion. Publicly funded projects may also involve cost recovery mechanisms or long-term economic benefits for the government.
  • Upon completion of the project, the development must then start becoming operational and begin serving its intended purpose. For instance, a housing development would become available for residents to purchase into, or a new transport network would start functioning for use by the community.
  • A 'Post-Implementation Review' is conducted to assess the long-term impact and efficiency and to determine if the project has achieved its intended goals. This is typically taken out only after a sustained period of time of the project being completed and in operation.

When should I start the application process for my loan?

If you have your land secured and a have a fair idea of the costs involved and the end values, then it is time to give us a call to discuss your development project. During the call we will explore your finance needs and discuss with you the best finance products to suit your plans.

What will I need when I make my application?

We will require the following:

  • Current value of your property if you own it
  • A cost breakdown for the renovation/conversion/build
  • Contingency plans and costs
  • Expected timescale for the development
  • Anticipated end value of the project
  • Any experience the developer may have in past projects in particular property development
  • A list of specialists and professionals who will be involved in the development, e.g., builders, architects, site manager etc.
  • Copies of any planning permissions needed for the build or renovation
  • Building regulations
  • Any planning restrictions or Section 106

What are the stages of applying for development finance?

There are 7 stages from initial enquiry to completion when applying for a development loan:

  • Enquiry: After finding suitable land and planning permission has been granted, it is a good time to contact us to enquire about a development loan.
  • Indicative Terms: After your first consultation with one of our team, if you are happy with the product you have been advised to apply for, you will be provided with a brief development overview which will lay out the indicative terms from the lender. This typically is done within 24 hours from initial enquiry.
  • Agreement in Principal: Meaning the lender will set out the outline of the offer for finance, including fees. This offer is subject to a number of conditions including, planning permissions, value of the property etc.
  • Site Visit: Typically the lender will want to visit the site as well as meet you and the professionals who will be involved in the project.
  • Valuation: Valuation of the property must be carried out by a professional surveyor where the potential profit and viability of the project will be evaluated.
  • Offer: Before an official offer is given, your loan application must be underwritten. This means that the contract terms will be confirmed including all costs and fees. At this point you will require a solicitor to act on your behalf, who will have a better understanding of how to navigate through the legal processes of property development finance. Make sure you choose a solicitor who has experience with development loans to avoid any delays.
  • Completion: Completion refers to the loan being fully arranged, approved and funds released to the developer's solicitor. This is when your contribution will be added to the loaned funds in order to complete the purchase. After this is finalised then the development project can commence.

What amount can I borrow?

The amount will differ depending on the type of development project. When we have identified what funds you will need, we will structure your finance to meet your requirements.

What costs are involved in a development loan?

It is important to factor in any additional costs when taking out finance. Costs and fees to take into account include:

  • Set up costs: This is a charge that is calculated as a percentage of the entire loan amount. This is typically 1% or higher and will be added to the total amount to be repaid.
  • Exit fees: This cost is based on the total loan amount or the final value of the development project and is generally charged at around 1%.
  • Interest: There will be a monthly interest charge which will increase as funds are released. In most instances the interest amount is added to the loan which is referred to as 'roll up of interest'.
  • Professional fees: These are the costs of any professionals you will need during the development process, including, architects, builders, solicitors etc.
  • Contingency costs: This is the amount of funds which have been set aside to cover any unforeseen expenses. An average contingency amount of 15%-20% of the developments total cost is typical.

What building regulations will need to be considered?

Complying with building regulations and getting the relevant planning permissions is of the utmost importance. Building Regulation Approval can be granted through your Local Authority Building Control Service. You are entirely responsible for complying with building regulations if you are doing the build yourself. If you are employing a building contractor then the responsibility will generally fall on them, but ultimately the owner is responsible and may be served with enforcement notices if there are any regulations not adhered to.

Is planning permission needed?

Yes you will need planning permission for your development project:

  • Outline planning permission: this type of application negates the need for the preparation of detailed plans for the development of land/ conversion of properties. When applying for this type of planning permission you can reserve one or more of the following: siting, design, means of access, external appearance, landscaping, until full approval is applied for. Outline planning is valid for 3 years but can be stretched to 5 years.
  • Approval of Reserved Matters: this is needed following the application of outline planning and lays out any outstanding details of the proposed development. This application must be done no later than 3 years after outline consent has been given.
  • Full/Detailed Planning Permission: you will not necessarily need to apply for outline planning permission before applying for a Detailed Planning Permission. When developers are ready to go they will be able to apply straight away but will be required to provide a very detailed development plan. Once permission has been granted the development can commence straight away.
  • Section 106: Section 106 of the Town and Country Act 1990, allows authorities to enter into a legally binding agreement or planning obligation with landowners by granting planning permissions. 106 agreements are a way of addressing necessary issues in order for a development to be viable in planning terms.

What are the stages of development finance?

From the first stages of planning and purchase to the finished product's sale, development financing usually entails multiple steps.

How is development finance calculated?

Evaluation of a development project's financial needs, loan amount determination, and financing arrangement structuring are all part of the development finance calculation process. Development money is calculated based on a number of parameters, and different lenders may use different procedures.

How much can you borrow with development finance?

The amount you can borrow with development finance is contingent upon a number of variables, including the lender, the particulars of your project, and the risks involved. The loan-to-value (LTV) ratio is the percentage that is commonly used to represent development finance as a percentage of total development cost (TDC).

Do you need a deposit for development finance?

Yes, in order to obtain development finance, a deposit—also known as an equity contribution—is usually needed. A common expectation of lenders is that developers will give equity for a portion of the total development cost (TDC), with the lender providing development finance for the remaining amount. The developer's financial stake in the project is represented by this equity contribution, which is intended to connect their interests with the development's performance.

How do you secure development finance?

A deliberate strategy is needed to secure development finance, and this includes meticulous planning, comprehensive documentation, and collaboration with lenders who specialise in funding real estate development projects.

What is development finance assessment?

A development finance assessment is the process by which lenders or other financial institutions analyse a real estate development project to ascertain its potential for success, hazards, and financial feasibility. An essential step in the process of obtaining development funding is this assessment. The evaluation helps lenders decide whether and under what conditions to offer financing.

What are NHBC, Architect Certificate and Build Sign Off?

At each stage of the development, you will need professional checks to ensure that all building regulations have been adhered to and works have been completed to an expected standard. This is typically done by your architect or through the NHBC.

What is the NHBC?

NHBC stands for Natonal House-Building Council. The NHBC is an independent provider of insurance and warranties for new homes.

What is a Fixed Price Contract?

A fixed price contract refers to a contract with your builder that fixes the costs that you will pay and will not change, even in the event of additional or unexpected costs. This can prove to be beneficial for both the builder and the developer as the builder will be able to charge higher fees, whereas the investor will know exactly what the costs are giving total peace of mind. Lenders are also more likely to lend for projects that have fixed term contracts.

How do property developers raise money?

Other than Property Development Finance, there are some other loan products that can be used to raise the funds needed - this entirely depends on the intended purpose of the property. Options that could potentially be used are Second Charge Mortgages, Buy-to-let Mortgages, Residential or Commercial Bridging Loans or seed/p2p funding.

What is the exit fee for development finance?

In development finance, exit costs usually range from 1% to 2%. This exit fee is normally assessed by lenders as a percentage of the loan amount; however, some base this proportion on the total gross development amount.

Is it a good idea to refinance a loan?

In some situations, refinancing can be a desirable option. Let's say you want to pay off your loan faster or you need access to quick cash to deal with a financial emergency. If so, refinancing can frequently provide you with the protection and flexibility you need to get through a difficult period or reach your financial objectives sooner.

Do I need a solicitor for development finance?

It is advised and necessary to have a solicitor because they will be needed to complete the legal process and meet all requirements. It is critical that your legal representative has experience handling development finance transactions because inexperience in this area can greatly impede the process.

Development Finance Products

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