As economic uncertainty continues to escalate, the UK’s biggest banks are becoming increasingly inflexible. Strict lending regulations coupled with complex in-house policies are making it more difficult than ever to qualify for specialist funding on the High Street.

Property developers and real estate investors in particular are feeling the pinch. Potentially lucrative projects are being left in limbo, or in some instances, failing to even get off the ground in the first place.

But this lack of flexibility and product availability on the High Street need not spell doom and gloom for investors and developers. It simply calls for a search for affordable funding beyond the High Street, which is where private lending comes into play.

A rapidly evolving segment

Demand for the kinds of flexible financial services that simply do not exist on the high street is being met by a rapidly expanding specialist lending sector. Across the UK, dozens of private lenders have gone into business to effectively (and in some cases literally) ‘bridge’ the gaps in the services provided by mainstream banks.

From bridging loans to auction finance to specialist development finance, it’s all available from an extensive network of private lenders.

What makes this specialised lending sector unique is how all applications for funding are assessed individually. None of the usual ‘binary’ application criteria apply; all requests are considered based on their broader merit.

This means that rather than being offered a limited range of off-the-shelf products, loans and development finance facilities are built from scratch to meet the exact requirements of the client. As a result, they get exactly what they need at a price they can afford, with terms and conditions that suit both the borrower and the lender.

The advantages of private lending

Seeking support from a specialist lender (as opposed to a mainstream bank) can be beneficial in the following ways:

1. Flexibility: All aspects of the facility can be tailored to meet the unique requirements of the applicant. This includes LTVs as high as 90% or more, a wide variety of repayment options (loan terms) to choose from, and the option to ‘roll up’ interest into the final repayment.
2. Accessibility: None of the normal restrictions apply when seeking financial support from a specialist lender. Even with poor credit, a history of insolvency, and/or no formal proof of income, it is still possible to qualify for flexible and affordable products like bridging loans.
3. Speed: With all required paperwork and documentation in place, bridging loans and development finance loans can be arranged within a few working days. On the High Street, the closest comparable products could take weeks (if not months) to underwrite.
4. Affordability: Interest rates and overall borrowing costs are always open to negotiation with specialist lenders. Some short-term facilities can be taken out for as little as 0.5% per month, with no initial arrangement fees, admin fees, or deposit payments required.
5. Freedom: Importantly, specialist lenders place few (if any) restrictions on how their products can be used. While traditional banks limit their loans and mortgages to very specific purposes, similar products from specialist lenders can be used for any legal purpose.

It is also possible to request a decision in principle on a bridging finance or development finance application without posing a risk to your credit score.

Far from a last resort, more businesses (and mainstream borrowers) than ever before are setting their sights on the UK’s growing specialist lending sector. With the support and representation of a skilled broker, a product search that goes beyond the High Street can pave the way for significant savings.

Not to mention, it is a far faster, easier, and less stressful experience than applying for funding via conventional channels.

For more information on any of the above or to discuss property development finance in more detail, contact a member of the team at UK Property Finance today.

 

Development finance is an ideal solution for developers and property investors looking to fund the construction or refurbishment of their properties using short-term funding solutions. When looking at funding for your development project, it is imperative that you familiarise yourself with all the options available so that you can make an informed decision.

What is development finance?

Development finance is a short-term loan for property development that is exclusively used for the construction or refurbishment of a property or property. It provides funds for investors and developers to manage project purchases and build costs.

Whether you are considering a residential, commercial, or mixed-use project, development finance could be a funding option available to you, including ground-up new builds, knock-down and rebuild projects, conversions, and refurbishments.

Development loans are typically arranged very quickly as opposed to other long-term funding products, such as mortgages, which can take considerably longer to be approved.

Most lenders will offer a loan period of 6 to 24 months; however, some, but not all, may extend this should you need to.

Although similar to bridging finance, development finance can provide both an upfront loan towards the site acquisition as well as further funding released at different stages throughout the project.

The Advantages and Disadvantages of Development Finance

Development finance offers unique benefits to property developers that other loan products can’t; however, it is vital that you take into consideration both the advantages and disadvantages before starting your development project.

Advantages

• Quick to arrange

Development finance can be made available quicker than applying for a traditional mortgage. Funds can be arranged in a short space of time, typically between 1 and 4 weeks, which allows the development project to get underway while alternative funding is arranged.

• Short-term loan

Development finance loans are available for a short period of time, usually between 6 and 24 months. The transient nature of this type of finance reduces the risk of being burdened by debt for an extended period or facing high early repayment penalties should you wish to repay early.

• Roll-up interest 

Development finance offers developers the opportunity to repay all the capital and interest in a single payment at the end of the term. The interest ‘rolls up’, eliminating the need for regular monthly payments.

• Competitive interest rates

If you are an experienced developer, you may be able to secure a development loan at a lower interest rate than inexperienced developers. Loans can be secured at a lower interest rate for larger projects and can be further lowered if you borrow a lower proportion of the gross development value (GDV).

Considering all these factors, we have a realistic range of 16% per annum as the upper limit for the interest rate on a development finance project that can go as low as 5% per annum for experienced developers borrowing a large amount at a low proportion of the GDV.

• Take on large projects.

Development finance paves the way for developers to take on ambitious projects with higher complexity and enables them to work on multiple development projects simultaneously. Traditional financing options can restrict developers from experimenting with more complex projects, whereas development finance offers the flexibility to work on projects of varying size and complexity.

• Available for a wide range of projects

Development finance is ideal for new-build, residential, commercial, and semi-commercial property development projects. It is especially beneficial for properties that require remedial work prior to being funded using traditional forms of financing. Developers can borrow loans even for derelict properties that would be impossible to get a mortgage for. The short-term financing option allows developers to refurbish any property and sell it at a profit.

• Limited capital outlay

Development finance doesn’t require any upfront payments other than your deposit. Instead, your cash on hand can be used for other expenses or simply to improve your cash flow position.

Disadvantages

• Eligibility criteria

Most lenders have strict eligibility criteria when approving development finance, particularly when the borrower is a first-time property developer. Developers with extensive portfolios will find it significantly easier to be approved for this type of finance.

• Planning permissions

Many lenders will require you to have all planning permissions needed for the development in place before considering any application for development finance. Issues with planning may cause considerable additional costs and problems down the line, and therefore the lender will want to see evidence that planning has been approved prior to approval.

• Paperwork

As the application process for development finance can be complex, it is imperative that you have all your paperwork in order before you apply. Lenders will expect to see an extensive plan detailing all aspects of the development, including planning permission, designs, drawings, and most importantly, costings.

• Additional fees

It is important to take into account any additional fees when costing your development project. These include arrangement fees, valuation fees, and legal fees, which can usually be added to the loan amount and therefore will not need to be paid upfront. There is also likely to be an exit fee at the end of the loan period when full repayment is made.

• Development finance for limited companies

For limited companies applying for development finance, most lenders will require some form of personal guarantee from the company’s directors to minimise the risk to themselves. It is worth noting that individuals applying will be personally liable for the entirety of the loan.

Who uses development finance?

As the name suggests, development finance is primarily used by property developers and investors for ground-up and extensive renovation projects. Funding can be used for land purchases and for the entire building cost. It is not unusual for a lender to fund, for example, 50% of the land purchase and 70% of the building costs, meaning that the developer will have fewer upfront costs, which in turn positively affects their cash flow, which can be used in other areas.

Is development finance right for me?

Once you have conducted your due diligence, it is time to make a final decision. So, how do you determine whether development finance suits you and your business needs? Answering a few simple questions can help you gain a better understanding:

Evaluating your business needs is the first step to determining if development finance is ideal for you.

• Analyse whether your business needs a short-term cash inflow or long-term financial aid.
• Assess your current financial situation to determine your ability to repay the loan on time without disturbing your finances.
• Lastly, gauge if you can provide the necessary paperwork to qualify for and access the development loan.

If you can answer these questions comfortably, development finance might be what you need to fund your project. An experienced development finance broker can help developers access the most comprehensive list of development finance lenders at the lowest market rates.

Summary

Individuals, builders, and businesses looking for quick, short-term funding can benefit from development finance to fund their development projects. It provides access to the funds developers need to develop or renovate residential, commercial, or mixed-use properties.

Working with an experienced development finance broker, such as UK Property Finance Ltd., ensures that the funds you require will be delivered on time and professionally. Talk to our team today for flexible, fast property development loan financing.

Each development finance product is unique. A bespoke agreement was reached between the issuer and the borrower. There are various different types of development finance that can be issued, each targeting different kinds of developments and fulfilling developers’ individual requirements.

But what remains consistent with all types of development finance is the importance of submitting the appropriate paperwork. The documentation you provide to support your application will play a major role in determining your eligibility for funding.

It is therefore essential to ensure you have the right documentation in place ahead of time, reducing the risk of delays and disruptions.

What paperwork do I need?

The extent of the paperwork required as part of your application for funding will be determined by the nature and extent of your requirements.

However, the overwhelming majority of lenders will expect to be presented with formal evidence of the following as standard:

• The value of the property at the time of your application
• The estimated final value of the completed development
• An overview of all construction and renovation costs
• A complete dissection of the project’s schedule and deadlines
• Extensive evidence of your experience and track record
• Examples of successfully completed similar projects
• Full disclosure of all providers involved in this project
• Confirmation of receipt of planning permission and permits
• Acknowledgement of any restrictions that may apply

In addition to the above, you will also need to provide your lender with evidence of a workable exit strategy. Your job is essentially to convince your lender that you are a safe candidate for development finance by showing them exactly when and how you will repay the facility.

This could be in the form of a lump-sum payment following the sale of the completed development or by transitioning your development finance loan onto a longer-term repayment product.

Do I need a broker?

While broker support is not mandatory when applying for development finance products, it can be beneficial in a variety of ways.

A few of the many advantages of enlisting independent broker support:

• Access to the broadest possible market of lenders and development finance products, as many specialist service providers offer their services exclusively via introductions.
• Independent expert advice on the various types of development finance products available will help you make the right choice for your project.
• A knowledgeable and experienced professional to negotiate on your behalf, ensuring you get the best possible deal from a top-rated lender.
• The advice and support you need to present a convincing application, complete with all necessary documentation and supporting evidence,
• A faster and simpler application process is essential when looking to secure funding in a time-critical scenario.

As broker support is offered 100% free of charge to the client, it simply makes sense to take advantage of their knowledge and expertise.

For more information on the logistics of development finance or to get your application underway, contact a member of the team at UK Property Finance today.

Development finance is a specialised funding solution for experienced builders and developers. The funds are issued by lenders for the exclusive purpose of developing or refurbishing residential, commercial, and mixed-use properties.

Development finance differs from other types of commercial finance in that it is typically released in stages as the project progresses. In addition, lenders consider the projected value of the completed property, not just its value at the time of the application.

What costs are incurred with development finance?

Our online development finance calculator provides helpful insights into what to expect when applying for funding. Along with fixed or variable development finance rates (APR), as with most, if not all, finance products, there are various additional costs and commissions to factor in.

The most important of which are as follows:

Arrangement or facility fee
This is the initial fee charged by the lender for setting up the facility and to cover the administrative costs of arranging the loan. Arrangement fees vary significantly from one lender to the next, anything from 0% to 2%, and are normally added to the loan when the loan is agreed upon and the first instalment is made.

Broker fee
Due to the large standing costs involved in simply being a broker, it has become more common for brokers to charge a fee for the services they provide. Whether a fee is charged, the amount, and when the fee is due are things to verify with your broker before going ahead. In most cases, the fee can be added to the loan.

Commitment fees
This is something like a deposit or insurance policy for the benefit of the lender, which may be payable before due diligence begins. Development finance specialists undertake a variety of operational costs, which must be considered. These are often covered in advance by way of a non-refundable ‘commitment’ fee payable by the borrower.

Legal fees
The applicant will also be expected to cover their own legal costs, even if the lender has its own in-house legal team that handles all pressing matters. Solicitors in general require an up-front payment before commencing their services.

Valuation fees
The current and projected future value of your property (or properties) must be independently verified and presented to the lender. Typically, development finance specialists allocate surveyors they know and trust to perform valuations, though the costs are always covered by the customer.

Monitoring fees
This refers to the costs incurred by the lender of quantity surveyors hired to monitor the progress of the project at various stages. Development finance is released in instalments at agreed milestones as the project progresses, and this requires careful, continuous monitoring.

Exit fee
Lastly, lenders often charge an exit fee for development finance. This could be imposed by way of a commission on the entire value of the loan, a fixed fee agreed upon when the loan was taken out, or a percentage of the total value of the completed project.

Building contractors often approach UK property finance for advice on getting into property development, and our most recent client showed more commitment than most. 12 months ago, our client, Steve, decided to sell his very successful building contractor to take up a new career in property development. Although Steve had 22 years’ experience in building, he had never gone the full length from groundwork to resale, so this was going to be a challenge.

Steve assembled a team and began work on the plot of land he bought from the proceeds of selling his business. Over the next 6 months, groundwork soon evolved into a house-like structure. The property was now wind and water tight with a pitched roof and windows and doors.

The plan was to create an executive property that reflected the affluent market in the local area. To bring this to a high standard, more funding was needed. Steve found UK Property Finance in an advert on Facebook promoting development finance and bridging loans. An enquiry was made, and within minutes, a UK Property Finance consultant was in touch with the client to understand his requirements.

The property had no existing mortgage, and because it was so tight, Steve was given a wide choice from the whole market. The rates were sourced based on the build type (timber frame), and because of the consultant’s experience, he was able to help the client complete an application quickly. Steve gave confirmation he wished to proceed, and a surveyor had already booked the site for the lender.

The valuation was processed, and the surveyor got in touch to inform UK Property Finance that the property value had come in significantly lower than the client expected. This was based on comparable evidence of similar properties in similar condition within the local area. The consultant called Steve to make him aware, but reassured the client they could find a solution.

The lender was contacted by UK Property Finance to find an amicable resolution. Both came to an agreement to offer the client a bridging loan known as a ‘tranche draw-down’. This was a great outcome for the client because they could immediately take a percentage of the loan they needed to commence work again. The remaining funds would be issued as the property value increased, reducing the risk for all involved.

The positive result spurred Steve on to resume work, and within a month, the outstanding work had been completed. UK Property Finance was able to support the client throughout the process and help with the first of many developments.