Construction Loans

In 2016, the House of Commons introduced the Right to Build Act to help ease the process of land purchase and promote smaller property developers.

Securing finance for a planned construction project, no matter what size, can be a daunting task. Specialist lenders for construction projects will be vigilant in ensuring the viability of any scheme before handing over the large sums of money that are typically required to make a building development a success.

UK Property Finance Ltd. has a wealth of previous experience when it comes to helping independent developers secure flexible, competitive construction finance.

Referred to as a construction loan or self-build loan, this type of finance is usually short-term and used to pay for the cost of constructing a building project.

It is important to note that the loan is based on the actual costs required to build the properties and not on the GDV (the value of the project upon completion).

The funds are usually drawn down by the applicant against an agreed-upon build schedule and thoroughly monitored at each stage to ensure the project is running on track and within budget for successful completion.

Because UK Property Finance are experts in the field of construction finance, we are well-equipped to guarantee that we will guide you through all the stages in a swift and transparent manner, ensuring you are paired with the right lender and understand the guidelines fully.

Qualifying for construction finance

Lenders will need to know that their investment is safe, so having previous experience will certainly be an advantage when applying for a construction loan. However, being a first-time developer by no means excludes you from this type of finance, provided you approach the lender with a comprehensive and viable development plan.

The lender will require certain information from you, such as who the contractor undertaking the project is and a detailed specification of the build. The lender will send an appraiser to consider the viability of the scheme as well as the value of the land being developed.

Borrowers will be expected to be able to make a large down payment, typically 20%, but it can be up to 25% for some lenders. A good credit rating and financial history will make you more attractive to lenders when applying for a construction loan, so it is important to get your finances in order before applying.

How a construction loan works

Once the applicant is approved, the lender will start paying out the agreed loan amounts. These payments are set against an agreed-upon schedule known as a draw.

The number of draws is agreed up front between the lender and the applicant; typically, the first draw would come from the applicant’s own share of the funds designated for the project.

At each stage, the lender will assess how the scheme is progressing before money is released to the developer to ensure everything is going according to plan and the funds are being spent appropriately.

What to expect from the construction loan rate

Interest on construction loans is only paid on the amount that has already been released. As the interest is paid monthly, only a small amount will be paid in the early stages of a development project, increasing as more funds are released at pre-set intervals throughout the development until completion.

The loan is paid off in full at the end of the term, either through the sale of the buildings or through re-financing.

UK Property Finance Limited has access to whole-of-market lenders and will find you the best possible interest rates available. If you have any questions on construction finance, give us a call, and we will be more than happy to answer any queries you may have.