What is Development Finance?
Development Finance is a popular form of short-term finance used for property development and construction projects. A development loan is typically used to fund the purchase of a plot of land, or an existing building with the purpose of developing in order to resell or rent. It can also be used to cover the actual construction costs including building materials and labour for both residential and commercial developments.
Development Finance schemes are available to both first-time and experienced property developers. This flexible finance is most commonly used for ground-up developments such as new builds on purchased land, but can also be used for large scale property renovations, such as a barn conversion or property layout changes.
How Does Development Finance Work?
Development Finance generally occurs in two stages. The first stage is the purchase of land or an existing property for development. In some instances, lenders will allow borrowing of up to 75% of the current value.
The second stage is the funding of the building costs. This is normally funded in pre-arranged stages as the project progresses. Each stage is signed off by a surveyor to allow the next stage of funding to be released by the lender.
Many lenders will allow borrowing of up to 100% of the build and labour costs.
How Much can I Borrow Using a Development Loan?
- The current value of the land or existing property.
- The total build costs.
- The ‘Gross Development Value’ also known as GDV. Which is the estimated value of the project upon completion.
Typically, lenders will provide up to 75% loan to gross development value. This means that if the Gross Development Value (GDV) is £500,000, borrowing of up to £375,000 is available.