Development Finance FAQsBelow are the Most Frequent Questions Relating to Development Finance
We have funders who will fund these types of sites allowing you time to obtain planning permissions/change of use for further development.
Lenders will not be prepared to lend as much against the value of the land – we would look to obtain a loan equivalent to 50% of the value of the land. If there is an existing property on the site then this Loan to Value may increase.
Once Planning Permission is granted we can look to raise further funds against the increased value of the land and provide the funding you need for the build costs.
We will help you to put your plans together to ensure that when we speak to the lenders we will have a plan which works and which they can support.
Many lenders are happy to support first time developers and we can speak to these lenders on your behalf. To overcome your lack of residential property development experience the lender will want to ensure you have a good team around you who can give you the advice you need and may require a Fixed Price Contract from a reputable builder to ensure you have no unexpected cost overruns. We will help you through this process and can recommend suitable professionals if needed.
We have secured finance packages for these types of permissions and have many lenders happy to look at these transactions.
Lending against residential property development schemes is more about the scheme and the experience of the development team – rather than the credit standing of the individuals involved. That said, however, in some circumstances the reasons for the poor credit will put lenders off and so funding will not be available. Please talk to us and we will do our best to help you.
If you apply for funding through a Limited Company then the lender will require Personal Guarantees from the Directors but otherwise all will be the same as borrowing in your personal name(s).
All lenders have their own unique terms, conditions and policies regarding how much they are willing to lend. Calculating how much you will need to borrow means considering:
- The costs of the land
- Total development costs
- All applicable lender fees
- Solicitors/legal fees
- Brokerage fees (where applicable)
- Contingency costs
- Completion fees
Most specialists offer up to 70% of the value of the land and 100% of the total build cost. However, it is possible to secure funding for 100% of the cost of the entire project.
Development finance is paid in instalments as the project progresses. An initial payment will be made to secure the site and get the project started, after which all subsequent instalments will be made as agreed in the loan schedule. It is therefore essential to ensure that all financial projections are as accurate as possible, in order to avoid running out of money at a key stage of the project.
The vast majority of loans work in the same way, with monthly interest charges being added to the total cost of the loan. These are then repaid at the end of the loan term when the outstanding balance is paid in full. As it is unnecessary to pay the interest charges on an ongoing basis, the developer can focus all of their efforts and resources on the project itself. Where interest is charged on a monthly basis, repaying a development finance loan as early as possible can often reduce overall borrowing costs.
A clear exit strategy to repay the loan is needed before Development Finance is agreed by the lender. Normally this will come from either the sale or refinance of the completed property. Development finance is a highly specialist form of funding. It is therefore important to speak with an independent broker to get impartial advice before taking out development finance.