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Development Finance Example

Development Finance Example

A Development loan is a short term loan advanced towards the purchasing of land or buildings requiring development. The required funds are issued in stages or drawdown payments upon completion of pre-agreed works. At each drawdown a surveyor (usually the surveyor who initially valued the project) will visit the site and on approval will authorise the release of further funds. This will ensure the agreed work has been completed satisfactorily before more money is released. This is also the most cost effective manner in which to take funds as interest is only charged when the stage payments are made.

Example of how a Typical Development Loan was Provided for 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

Site cost/valuation:£800,000
Build cost (released in stages):£600,000
End valuation:£2.4million
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.

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