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.
It is no secret that Boris Johnson chose a rather questionable time to refurbish his luxury London flat. While most people across the UK were struggling to make ends meet, the Prime Minister raised eyebrows by spending a small fortune on predominantly unnecessary adornments.
The exact amount he borrowed to pay for the refurbishments has been revealed: an eye-watering £52,000. Having been questioned on where the funds came from, the Conservative Party has now admitted that Boris Johnson “personally settled the costs incurred by Lord Brownlow”, a party donor who helped finance the work.
Having previously described what was once the home of Theresa May as a “John Lewis furniture nightmare”, his wife, Carrie, made no secret of her disdain for its décor. Disdain was so severe that the pair thought it sensible to hire top designer Lulu Lytle to oversee its overhaul, which, according to insiders, included £840-a-roll golden wallpaper.
Not that such a high price guarantees quality; as rumour has it, the elaborate wall covering has peeled away from its surface.
A painful price paid by the taxpayer
Documents have now confirmed that the loan repaid by Boris Johnson came alongside an additional £28,600 paid by you, the UK taxpayer. Tasks including painting and sanding his floorboards were funded straight from the pockets of the British public, leaving sour tastes in the mouths of many.
Published financial accounts from the Conservative Party indicate a “bridging loan” of £52,802 repaid by Johnson out of party funds last summer. Lord Ludlow would then go on to cover these costs, but no declaration was made to the Electronic Commission.
Even though the law clearly states that all donations and loans to political parties of five figures or more must be reported,
“All reportable donations to the Conservative Party are correctly declared to the Electoral Commission, published by them, and comply fully with the law. Gifts and benefits received in a ministerial capacity are, and will continue to be, declared in government transparency returns,” was the response from the conservative Party, clearly refusing to acknowledge any wrongdoing.
Questions remain as to how the refurbishment was originally funded and how much the project cost in total. Despite the declaration from the Conservative Party, numerous reports suggest that he may have spent more than £200,000 breaking into his new flat.
Again, all at a time when the rest of the country was struggling to make ends meet and facing a terrifyingly uncertain financial future.
There are two things driving the UK’s real estate sector’s record performance right now: the growing desire among movers and first-time buyers to escape the city and pick up spacious properties with private gardens and rock-bottom interest rates. This usually takes priority.
For some time now, mortgage rates have been hovering around all-time lows, and for those able to qualify for a mortgage, it has been a tempting venture. Particularly where larger deposits are being handed over, some mortgage rates available right now are lower than they have been in years.
You have to sympathise with what is fast becoming an entire generation of frustrated first-time buyers. Or should that be, would-be first-time buyers, who, for a string of reasons, are unable to capitalise on the lowest mortgage interest rates they may ever see in their lifetime?
Growing wealth inequality
Young people in droves are accepting that they are unlikely to ever own their own homes. It is an issue that is more prevalent in some parts of the UK than others, but it is nonetheless an undeniable crisis the whole country is facing.
Many continue to point the finger of blame squarely at the lack of new housing inventory. The government isn’t close to reaching its own house-building targets, meaning there simply aren’t enough affordable homes to go around. Even if the government were to fulfil its overly ambitious goals, chances are it would have little to no difference in average property prices.
Affordability is not something that changes overnight, particularly in an era of unprecedented demand. Give things a decade or so, and we could see added inventory knocking 3% off the average price of a UK home. As things are going right now, this is the kind of growth house prices are seeing every few months.
Irrespective of how many ‘affordable’ homes are built over the coming years, catastrophic wealth inequality is still going to price most first-time buyers out of the market.
Access to affordable mortgage rates
Another issue compounding the problem is the difficulties first-time buyers are facing when attempting to access today’s competitive mortgage rates. For most, coming close to saving a 20% deposit or even a 10% deposit has always been completely out of the question, highlighting the value and importance of the government-backed 5% mortgage initiative.
For the first time in a long time, first-time buyers were presented with the opportunity to qualify for a 95% LTV with a deposit of just 5%, until it became clear that OTT scrutiny and excessive affordability tests are making it all but impossible for most to qualify.
A 5% deposit mortgage is all well and good, but not if you can only borrow four times your annual income. Applicants without a good credit history are also being declined, as are those who took advantage of government grants or those who were furloughed during the COVID-19 crisis.
The addition of affordable inventory to the housing market would, of course, be welcome, but it is by no means a silver-bullet solution to the escalating housing crisis.
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.
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.
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.
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.
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.
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.
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.
Major construction projects often call for equally major financial support. Unless you’re already sitting on a stockpile of cash, you’ll need to enlist the help of a specialist lender.
In which case, you’ll be looking at a choice between two viable yet very different funding solutions:
development finance or a self-build mortgage
While both options could provide you with the funds you need to successfully complete the project, each has its own unique pros and cons. So rather than choosing at random, it pays to consider both options carefully and decide which works best for you.
Examining self-build mortgages first, these specialist funding solutions are designed for lenders looking to build a property from scratch, extensively renovate a current property, or demolish and rebuild a property.
One of the key provisions of a self-build mortgage is that the individual applying for the loan becomes the occupier of the property upon completion of the project. As a result, the vast majority of self-build mortgages are provided in the form of a regulated residential mortgage. The difference is that, unlike regular mortgages, the funds provided with self-build mortgage loans are released gradually as the project progresses.
For the typical homeowner looking to renovate, expand, or rebuild their current property, a self-build mortgage could prove ideal. Likewise, anyone planning to build their own dream home from scratch could access the funds they need by way of a secured self-build mortgage.
Nevertheless, self-build mortgages are relatively limited in scope and have very restrictive terms and conditions.
By contrast, development finance is far broader in both scope and flexibility. Development finance is a dynamic funding facility for residential and commercial property developers who intend to sell the resulting properties upon completion.
There’s no requirement for the borrower to become the owner-occupier of the property or properties being constructed. In addition, there’s also greater flexibility with regard to the types of properties being built and their intended purpose.
Along with new-build properties, development finance can also be used to fund extensive renovation, extension, and improvement projects. Development finance solutions are tailored in accordance with the unique requirements and financial circumstances of each applicant individually.
As development finance is geared towards developers building and ultimately selling properties, it isn’t a suitable funding solution for individuals planning to build homes for themselves.
Key features of development finance
While self-build mortgages bear many similarities to traditional mortgages, development finance is an entirely different funding solution. Some of the most important features and characteristics of development finance include the following:
- Flexible finance can be obtained to cover the costs of new property construction, the refurbishment of existing properties, and property conversions.
- Borrowers can apply for development finance to assist with single properties and multi-unit developments.
- Development finance is typically available from £500,000 and up, with no specific limitations imposed.
- Most lenders will provide development finance to cover a maximum of 75% of the property’s gross development value.
- Terms and conditions are highly flexible to accommodate the requirements and budgets of a diverse field of borrowers.
Roughly summarised, self-build mortgage products are open to applicants who intend to build or renovate a property they will go on to occupy. With development finance, commercial property developers are offered financial support to fund more extensive projects for business purposes.
In both instances, the key to finding the best possible deal lies in comparing loans from as many specialist lenders as possible. Compare the market with the assistance of an independent broker, incorporating major High Street lenders and the UK’s most dynamic property finance specialists.
Contrary to popular belief, the average developer doesn’t have an endless stockpile of cash just waiting to be put to use. Instead, the vast majority of property developers require financial assistance for the projects they undertake.
So it’s good news that there are so many options available to explore: Including the following 10 examples:
First up, standard high street mortgages have the potential to be useful — assuming relatively extensive waiting periods are acceptable. Mortgages allowing large sums to be borrowed with no initial collateral be necessary.
Second charge mortgages
The difference with a second charge mortgage being that the funds are typically used to top-up existing loans. A second charge mortgage can be secured against the value of your property, even if you aren’t living in it at the time.
As the name suggests, commercial mortgage products are designed specifically for commercial property purchases and development works in general. Similar to conventional mortgages, though exclusive to commercial borrowers and often more flexible.
These can be great for development finance, assuming you have the required collateral to put up. Regardless of the value of your property or assets, it is usually easy to borrow the equivalent value in the form of a loan for your project.
Another very specific type of mortgage, available exclusively for those purchasing properties to let out. Useful where available, though becoming increasingly difficult to successfully obtain.
Residential bridging loans
Residential bridging loans are typically offered in accordance with the collateral/security the borrower can provide. A fantastic and comparatively affordable option when development finance is needed quickly and can be paid back within a matter of months.
Commercial bridging loans
Pretty much the exact same concept as a residential bridging loan – large sums of money are made available for commercial purposes in a matter of days, in the form of a secured loan to repay back in full within a matter of months.
A bridge-to-let loan is typically calculated and granted on the proviso that the borrower is able to achieve 100% rental coverage from the property itself. The exit strategy being usually to refinance using a conventional buy-to-let mortgage.
Depending on the project in question, the developer may be able to secure the financial assistance required from private investors. Just as long as the merit and value of the project can be sufficiently verified, there are always plenty of businesses and individuals alike on the lookout for valuable property investment opportunities.
Last but not least, while it isn’t considered a ‘conventional’ approach to accessing financial assistance, crowdfunding nonetheless has huge potential. It’s simply a case of giving anyone wishing to do so the opportunity to invest in your project at a comparatively low level, in exchange for some kind of stake in its successful completion/fruition. It isn’t always easy to drum up this kind of support, but can be remarkably flexible and versatile if and when you can.
For more information on any aspect of development finance, get in touch with UK Property Finance today!
For most homeowners, there’s really no easier or more affordable way of extending a property than with a professional loft conversion. Most homes have a potentially huge amount of space that could be put too much better use, without the need for major remodelling or extension works. That said, a high-quality loft conversion doesn’t come cheap, hence the importance of carefully considering all available methods of financing the project.
The question being – which represents the best choice for you?
Get it right and a quality loft conversion can more than pay for itself. By increasing the overall value of your property by as much as 25%, a loft conversion can be one of the most outstanding long-term investments any homeowner can make. When it comes to financing these kinds of alterations, the preferred options for UK homeowners are as follows:
One readily available option for larger loans is re-mortgaging. Taken either as an extension on your current mortgage or a new mortgage if yours is already paid up, such loans can technically be offered with no upper limit. On the downside, any kind of mortgage deal can be time-consuming and difficult to organise, while at the same time being secured on your property which is used as security for the loan.
Unsecured personal loan
If the required sum comes in under £25,000, it could be easy and affordable to go with a standard personal loan. Unsecured loans are typically easy to access and carry fair interest rates, with no collateral being required. That said, qualification for personal loans of a relatively high nature can be tricky these days, as major banks and lenders continue tightening their criteria.
An increasingly popular choice, bridging loans are great for those looking to borrow a moderate sum of money for a short period of time. For example, you could borrow £20,000 with a bridging loan, add £40,000 to the value of your home, sell-up as part of a planned relocation and pay back the loan within weeks or a few months. Simple, uncomplicated and fast access to the funds you need. Bridging loans are great where fast and full repayment is preferable.
It’s also worth remembering just how much money there is tied up in the rest of the property as a whole. Equity release can typically be tailored to suit the needs of homeowners across the board, providing the perfect solution when funds are needed quickly. With equity release, there are very few qualification criteria to speak of and minimal complexities. With equity release, it’s all about the collateral.
Secured personal loan
Last but not least, a secured personal loan delivers exactly as it promises. The benefit of a secured loan being that it’s far easier to qualify for this type of financing, as credit history and current financial position etc. are not taken into account. Just as long as you have the required collateral, you can usually get a great deal.
For more information on any of our financial products or services, get in touch with the UK Property Finance customer service team today.