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Finance a Property Development with No Deposit

Is it possible to finance a property development project without a deposit? Uncover the potential solutions in this in-depth guide from the mortgage financing expert.

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Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Finance a Property Development with No Deposit

Property developers often consider joint venture financing as a popular way to raise funds required to invest in a development project without using personal funds to pay for a deposit.

The Revolution Brokers team has compiled this guide to explain the three primary ways of using joint venture financing for property development.

It's worth remembering that there are other ways to raise development finance without a cash deposit, so get in touch if you're looking for innovative funding suggestions to get your project moving!

For further assistance with development financing options and finding the most competitive lending for you, give us a ring on 0330 304 3040 or email the team at [email protected].

How Does 100% Development Finance Work?

Joint venture finance is also called 100% development finance. No deposit is needed, and the lender will put up 100% of the budget required - hence the interchangeable terms.

In return, the lender gets a share of the profits, usually between 40% and 50%, although you'll need to clarify the exact profit share in the agreement.

Developers seek out this type of lending since the funding provider is usually well established in the market. They get professional backing from a joint venture development financier and the financial support required.

For lenders, they'll look for profitable, viable projects with impeccable planning before risking their cash - but in return, they will get a share of the profits without having to commit to a substantial amount of work.

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Private Investors as a Joint Venture Property Development Finance Partner

You can work with a private investor as opposed to a funding provider. In most cases, you will need to set up a limited company called a Special Purpose Vehicle.

The SPV holds ownership of the property, with the developer and investor having shares or interests.

In this scenario, it is essential to work with a reputable investor since you don't have any third party involvement or regulatory oversight if things go wrong

We don't recommend approaching multiple investors, as there is potential for exposure to unethical investors, so it's wise to seek out a partner from a trusted source.

If you're weighing up potential investment routes and want to ensure you're making smart decisions about the most suitable financing for your development project, please get in touch, and we'll be happy to provide independent advice.

How Does Senior Developer Finance Work in Property Development?

The third option is to work with a private investor to raise the required funds and then raise the total needed through a senior development finance provider.

The third option is to work with a private investor to raise the required funds and then raise the total needed through a senior development finance provider.

Using development finance reduces the required investment from your private partner and makes it a more straightforward proposition to pitch.

The investor likewise gets a good deal, as the investment value is smaller and the return higher.

If you opt for senior developer finance, the key is to ensure you're looking for an appropriate amount of financing in line with the profit margins available on your property development project - it has to be attractive to secure investment over and above other pitches.

However, if you're successful, you don't need to request a high investment from the developer finance.

What Do Development Finance Lenders Assess in a No-Deposit Applicant?

If you don't have a deposit, a development finance lender will always need to assess other potential risks associated with your property development carefully.

In a standard development finance loan, the lender takes a charge over the property, whether that's a plot of land, building for renovation, or commercial unit.

The borrower pays a deposit or uses the equity in the property as a deposit source, so if anything goes wrong, the lender can repossess the premise and sell it to recoup the lending they're still outstanding.

In development finance, the risk is much greater. That's because the property probably won't be in a finished state and might not be worth as much as the gross development value anticipated once the development work is complete.

Therefore, a no deposit scenario is even riskier since if the lender advances 100% of the value of the work, they might be left with ownership of a property that isn't worth as much as the borrower paid for it.

Hence, the need to ensure your property developer finance application is robust, with built-in contingencies, comprehensive budgets, and complete plans to specify precisely what works you're planning and how much the property is expected to be worth.

Below we'll run through some of the key criteria a lender will analyse in this situation.

What Are the Eligibility Criteria for Developer Finance With Zero Deposit?

Every lender is different, so they'll all have varying policies and criteria that they'll need any applicant to meet before they can approve a development finance application.

The below list summarises the general borrower criteria you're likely to encounter:

  • Experience - lenders prefer to lend to borrowers with property development experience. If you're applying as a business or trader, they'll want to see your trading history and past portfolio projects.
  • Property type - some developments are more attractive than others. It's essential to check that the property will generate sufficient profit to make it a viable return before you apply.
  • Planning permission - if you have planning permission in place before applying, you stand a much higher chance of approval.
  • Valuations - an appraisal carried out by an independent valuer will help support your anticipated profit figures. However, a lender will usually require a separate valuation by their own agent; but investing in an appraisal before applying is an excellent way to demonstrate that your projected returns are achievable.
  • Exit strategy - developer finance is a short-term financing product designed to assist developers in covering the costs of developing a property - and sometimes, a proportion of the initial outlay to buy the land or premise. Having a solid exit strategy to show how you expect to repay that finance helps mitigate the risk of having no deposit.

Don't worry if you don't meet these criteria since specialist lenders can offer flexibility with their requirements.

Give Revolution Brokers a call if you're concerned about being a new developer, for example, and we'll steer you through the best financing options.

Is it Possible to Get Property Developer Finance Without a Deposit?

It is possible, but not always easy, to secure developer finance without a deposit - the vital factor is ensuring that every other aspect of your project plans is watertight and demonstrates an excellent opportunity for the lender to make a reasonable return.

Providing supporting information, thorough plans, comprehensive budgeting, and independent valuations all help prove that your project is well thought out, with few risks that it won't go to plan.

Professional Advice with Developer Finance

The mortgage advisors team has years of experience negotiating developer finance for many projects, from substantial commercial developments to first-time home renovations.

If you'd like advice from the independent, whole-of-market experts about the best way to finance your property development, with or without a deposit, please get in touch at 0330 304 3040, or drop us an email at [email protected].

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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