We Offer the UK’s Most Competitive Interest Rates for Development Finance
Here at UK Property Finance Ltd we are ‘all of market’ brokers with access to the best rates available, enabling us to deliver affordable finance for all types of property purchases and development.
- 90% LTV and/or 75% loan of total GDV
- Loan amounts from £25,000 to £100,000,000
- Finance for new builds and conversion
- Multi-unit and single unit development projects
- Multi-use property development
- Commercial development projects
- Finance for both experienced and first time developers and investors
- Options of development finance including regulated and unregulated
- Funding for acquisition and development of partially completed projects
- 100% of build cost and 70% of land cost from day one of the project available
- Joint venture opportunities
Key Features of Development Finance
- Loans available from £25,000 upwards
- No early repayment fees for the majority of development loans we offer
- First time developers and experienced developers welcome to apply
- Funds released in stages in accordance with project requirements and interest charged only on cash received
- Secured loans available where other properties can be used as collateral
- Flexible terms to meet you individual project needs – if you project comes under budget you will not be required to borrow the full agreed amount
- Competitive and lower interest rates for developers with a proven record of success
What is the Criteria for Development Finance?
As a general rule of thumb, the following lending criteria will be required:
- Loans starting from £25,000 with no upper limit
- Loan terms of up to 24 months
- Interest rates from around 7% p.a
- Interest is ‘rolled up’ and paid at the end of loan period, therefore no monthly interest charges
- Average lender arrangements fees of 1-2% of entire loan amount
- In some instances, exit fees will be charged, usually when the LTV is high
- Land purchase LTV of 75% and build cost 100%
- Drawdowns will be made in line with cash flow requirements subject to careful monitoring by the lender using a QS/monitoring surveyor
- Valuations performed by the lender both before development and after to assess the value of the completed project (GDV) and the initial build costs.
Advantages of Development Finance
The most beneficial aspect of development finance is the fact that it gives developers and investors access to large amounts of money in order to finance big development projects.
The total amount needed is carefully assessed with funds being released at key stages of the development. The entire cost of the build can be borrowed with no specific upper limits, giving the developer the flexibility to bring the project to a successful completion.
- Development loans can be secured against buildings, land and developments considered unsuitable by other lenders, including derelict and run down properties.
- Because development finance can be repaid in a short period of time, overall borrowing costs can be kept to a minimum.
- Funds are released in stages, according to the progress of the project and interest is only charged on money the borrower has actually receive, therefore there is the opportunity to keep costs down.
- There are no real limitations on the amount that can be borrowed provided that sufficient proof that the development will be successfully completed is provided to the lender. 100% of the total construction cost can be borrowed.
Costs and Fees Associated with Development Finance
There are various fees you will need to take into account when calculating the total cost of your development project:
Facility Fee – also commonly referred to as the arrangement fee. This fee is typically calculated as a percentage of the total loan amount.
Interest Rate – Interest on development finance can be on a monthly or yearly basis. Yearly rates are typically around 7% and monthly rates around 1%.
Exit Fee – Sometimes referred to as a completion fee which is usually calculated as a percentage of the total cost of the loan. Some lenders will calculate the exit fee as a percentage of the value of the completed project as opposed to the loan value.
Broker Fee – Most brokers will not charge their clients a fee as they receive commission from the lender, however, some will charge either a fixed fee or a percentage of the total loan amount.
Valuation Fees – as development finance is a secured type of loan it will be required that a full valuation of the assets offered for security are valued by a neutral third party. The completed project will typically be valued at the same time.
Application Fee – Some lenders will impose a fee simply for making an application. UK Property Finance do not charge an application fee.
Legal Fees – Any required legal advice or need for a solicitor for any reason will result in legal fees that will have to be paid by the borrower.
Administration Fees – These fees can refer to just about any administration work and are therefore somewhat vague in terms of what they include. UK Property Finance do not charge any administration fees.
Monitoring Fees – Due to the monitoring required by the lender on each development to ensure that the project is reaching its predetermined goals, you will need to pay monitoring fees. This is to ensure that the funds being released are allocated as agreed and that the lenders investment is safe.
Drawdown Fees – This is a fee which is sometimes imposed every time funds are released to the developer. The fee can be a fixed amount or a percentage of the project.
Telegraph Transfer Fee – Also referred to as TT fees, this is the fee charged by the banks handling the transfer of funds, which in the case of a development loan will involve large sums of money. TT fees tend to be low and are typically fixed.
Development Finance: The Process
Development Loans are typically tailored to meet each individual developers requirements according to the specifics of the project. When applying for development finance, there are several key stages that you can expect.
- Initial enquiry and a no-obligation, free consultation
- Comparison on deals from specialist lenders offering property development finance in the UK
- Submission of initial application to suitable lenders
- Agreement in Principle issued by the lender to the borrower
- Visit to the site to establish viability of the development project
- Independent valuation of projects total value
- Formal offer and terms of loan issued
- Solicitor involvement for legal advice and support
- Completion of loan and first payment released (drawdown)
- Periodic instalments to fund each stage of the development
- Repayment of loan as agreed at the end of the loan term
How Is Development Finance Repaid?
Interest is typically added to the property development loan on a monthly basis, therefore the sooner you repay the loan, the less interest you will be charged, and thereby reduce overall costs.
In most instances the loan is settled in full, either through refinancing or sale of the property, upon completion of the project:
- Build to sell – the developer intends to sell, in full or in part, in order to repay the property development loan
- Build to rent – the developer intends to rent out the property and will find long term finance, for example a mortgage, to repay the development loan.
- A combination of the two – the developer intends to sell part of the development upon completion, and retain apportion to be rented out.
Development Exit Finance
Development exit finance can be used by developers to repay debts prior to selling the development after its completion. The benefits of developer exit finance include:
- Cutting costs and increasing profit due to exit finance being typically cheaper at this stage.
- Bridging the gap between completion of the project and sale if the current loan term reaches its conclusion before the sale is completed.
- Freeing up capital at an earlier date, which enables developers to commence new development projects before completion of the sale.
Development exit finance is a type of bridging loan which can be arranged quickly, is short term and with relatively low interest rates, making it an attractive option for developers.
Example of Development Finance
A development loan is a short term lending facility use for the purchasing of land and/or property intended for development. The funds are released in stages or drawdown payments upon completion of pre-agreed works. At each drawdown a surveyor (usually the surveyor who made the initial valuation) will visit the site and will authorise the release of further funds. This is to ensure that all pre-arranged work stages are being met and to ensure that the funds are being used appropriately.
Case Study – A Developer in Bradford
The Developer had purchased a derelict Mill situated in the centre of Bradford near to the University and had gained planning permission to develop 62 student pods. The Developer had already spent substantial funds to start the development and now needed £600,000 extra to complete the required works. Importantly, they had a tough deadline and were trying to complete the build in time for the students returning for the start of the next academic year.
UK Property Finance quickly secured the £600,000 needed over a 12-month term. Building works were able to continue unhindered and after only 6 months the project was completed, and the bulk of the pods rented. The monthly interest was rolled throughout the term of the loan meaning the client was not required to make any monthly payments but instead, the interest was paid at the same time that the loan was repaid.
Interest on the development loan was calculated for the time that the money was outstanding, i.e. 6-months not the full 12-month term and we ensured from the beginning that the chosen scheme had no penalties for early repayment.
Typical Project Costing Breakdown
|Build cost (released in stages):||£600,000|
|Developer profit:||£1 million|
As the property was mainly let on standard Assured Shorthold Tenancy agreements after 6 months, UK Property Finance were able to arrange Long Term Commercial Finance to repay the development loan via a high street funder.
Our swift and proactive approach enabled our client to maximise profitability by ensuring the funding was available in time to complete the build thus enabling students returning to University, to habit the pods.