Guide To Development Finance
Development finance tends to be a short-term loan, assisting a property developer or investor in either the purchase or the development of a property. Development finance is available for both residential and commercial investments.
The scope of development finance is broad, split into two main sections:
New build property developments
Existing property refurbishments
Development finance for new build properties
When using development finance to help fund a new build scheme, the funding may cover the cost of the land as well as the cost of the build if required.
Some lenders will extend financing to cover 100% of these total costs.
New build development finance is available in a variety of forms, so give Revolution Brokers a call on 0330 304 3040, and we will help you assess the best mortgage options for your new build project.
Development finance for property refurbishments
Refurbishments can be major or minor. For example, converting a commercial property into residential or dividing a property into multiple apartments. There are lots of lenders in this market, some who specialise in refurbishment finance and others who provide new-build development lending as well.
This type of finance may be available to cover the cost of the property as well as the refurbishment works. It is always worth considering whether the investment will then be sold, or retained as an investment property over the longer-term.
For professional advice about how to leverage your investments for the maximum return, and which finance products will assist, get in touch with our team today!
Development finance timescales
Your development lending needs to be structured around your requirements, and usually has staged funding releases in line with your development plans.
Usually, this involves an initial lending payout at the start of the project and then staggered payments at specific intervals. This system ensures that you only pay interest on the lending released, and not on the entire facility if you have not yet drawn down the funding.
Should you need support with establishing a schedule of works, and how to align your development finance with your project to minimise the interest cost, give us a call and our development finance team will be delighted to assist!
Lender requirements for development finance - Use our Development Calculator
When applying for development finance, lenders will ask to see various documents to help them understand the project in hand. These include:
Costings and budget for the works
Designs and architects plans
Confirmation of the anticipated sale value / rental yield of the property
Your experience as a property developer
Should you need assistance with any of the requirements, or be a new property developer and need specialist finance to get your first project underway, give us a ring!
At what stages of property development is the financing released?
The timings of your funding releases depend on your plans, but typically are:
1. Land purchase - lending to purchase the land, or credit to the total value of the property if already purchased.
2. First works - borrowing to cover the costs of the foundations and initial groundwork
3. External structure - this is called the 'wall plate' and is when the simple outer structure is erected.
4. Weatherproofing - the stage when the property becomes water tight and windproof, including the installation of windows and roofing.
5. First fix - this is stage one of the internal decorations including things like installing electrical points and plastering the interior walls.
6. Second fix - this is the second stage of the inner works, when the painting and decorating are completed.
What factors impact the availability of development finance?
Every development is individual, and so lenders will assess every project on its own merit.
The factors they will look at are:
The cost or valuation of the site or property
The total cost of the development project
The gross development value (GDV) - i.e. what the property will be worth, or how much income it will generate
You can use our development calculator to give you the indicative terms of what you will be able to borrow for your development finance.
What criteria have to be met for development finance payments to be released?
Usually, each stage of funding will be released once a pre-agreed criterion is met. These payments can be either in advance or in arrears, and the structure depends on your property and your project.
If released in arrears, the property developer will be claiming back the cost from their lender for the works completed. In this scenario, an independent surveyor will usually value the project at each stage.
Typically, the maximum amount of funding available for release during a property development is up to around 60-70% of the total property value. Higher proportions of funding can be released, depending on the security in place against the loan facility.
So try out our Development Calculator today for a free breakdown of your development project!