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Property development finance is designed to provide developers with the capital needed to construct a new building or convert an existing building. It is the most suitable type of property finance to fund a residential development, commercial premises, or industrial building.
We are able to source a development loan regardless of whether you are an experienced developer or first-time builder, however the level of experience you have usually dictates the rate available to you.
The maximum you are able to borrow against the development is 70% of the of the purchase price depending on whether the project is a ground-up development or light refurbishment so you will need some capital in advance.
In addition to the development loan you require to fund the purchase, you can borrow up to 100% of the build cost. You will need to make sure the total loan does not exceed 70% of Gross Development Value (GDV).
Maximum development loan varies from lender to lender, so the benefit of using an intermediary like Propp is having access to a wide range of products. Our lenders offer loans from £250,000 to £50 million.
The maximum period you can hold development finance is usually 36 months. Your exit strategy will usually be sale of the development or refinance.
Unlike getting a standard mortgage to build a house, development finance lenders release a percentage of the funds at the beginning of the build to get the project underway. The remainder of the money is released in draw-downs as the project continues.
Interest is only charged on the funds that get released, so dependent on how the project progresses the overall costs of the facility could be much lower.
Another way in which property development finance is a good option is if you’re looking to borrow to fund a project that would be rejected by mainstream lenders, such as derelict or rundown properties.
The cost of development finance varies from lender to lender and your experience as a developer will impact the rate you have access to. Fees, charges and general costs are usually made up of;
Providing you have development experience the main considerations from the lenders point of view are the assets you are able to offer as security and the feasibility of the project in terms of profitability. You’ll need planning permission and a statement of works before you start looking for a development loan.
Development finance can be used to fund the ground-up development, conversion or refurbishment of a residential development, commercial premises or industrial building.
As an investor you may have stumbled across an attractive development opportunity but as someone with zero experience managing a similar project you may wonder how to get the ball rolling, or if it was even feasible.
The good news is, its not impossible. There are lenders open to lending to inexperienced developers on the basis that you have a strong team of experienced contractors, architects, quantity surveyors and project managers that have a proven track record of managing similar projects.
The second element lenders will assess is the viability of the project. Will it be profitable? Does it have planning permission? Are your timelines and budgets realistic?
This may sound daunting, but our development finance experts will support you to assess your proposal and stress test it before presenting it to lenders.
If your proposal has been rejected or you were unable to find the capital you needed to support the loan, one option is a joint venture with a more experienced developer: you pool your resources to access their know-how and secure the funding you need. This means you can benefit from their experience to get your first project under your belt as well as being able to pool your resources to put up the amount needed.
Are you looking to build £1m properties at the top end of the market or are you targeting the more accessible mid-range? Lenders prefer mid-range values that are relevant and accessible to your local market as they are more likely to sell quickly.
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* bespoke quotes supplied the next working day following provision of all required lender information being supplied and validation by Propp case manager
† saving based on annualised interest rate saving where deal optimiser service negotiated a lower rate than lender’s published rate, based on current average saving of 0.9% and average loan £1051785. Time saving based on automated versus manual bespoke rate requests.
† saving based on annualised interest rate saving where deal optimiser service negotiated a lower rate than lender’s published rate, based on current average saving of 0.2%. Time saving based on automated versus manual bespoke rate requests.