Development Finance Guide
In recent times, the Development Finance sector has experienced something of a dramatic boom in terms of expansion, with the market now almost completely saturated with competitive borrowing options and each one more affordable than the last. With profit margins falling and lending criteria increasingly less stringent, particularly for first time borrowers or those with credit difficulties, there has never been a better time for property developers to gain access to affordable funding for their next venture.
So, what exactly is Development Finance?
In the simplest terms, development finance is primarily a short to medium term funding solution designed for property development transactions of many different natures. A property development loan can be used for a wide range of funding purposes, such as financing the construction of new build residential or commercial properties, to pay for the acquisition of development land or to cover the costs of major renovation or refurbishment work.
Whereas traditional mortgaging products and loans are secured against the market value of a property or land plot, development finance is lent against the projected gross value of the completed project. The loans themselves are specifically tailored to meet the needs of the individual borrower and the project itself, with funds being released incrementally as the various stages of the building or renovation work are reached and completed.
When Can Development Finance Be Used?
You can apply for development finance in order to fund all manner of projects, including the following:
- Turning a plot of land into a new build residential, industrial or commercial complex
- Refurbishing existing properties with a view to making a realistic profit
- The conversion of commercial buildings into residential apartments or mixed-use property (i.e.: turning an old mill into a number of retail outlets with flats or student pods included as part of the development)
What Type of Security Can I Use?
Development finance lenders will typically consider using most main property types (including land) as security for a loan. Common examples include residential dwellings, mixed-use plots (with an emphasis on residential accommodation) and land with planning permission.
However, some lenders may not be willing to accept land without residential planning permission, such as predominantly commercial development plots or non-standard constructions.
Of course, this will vary from one investor to the next and a good broker will always do their best to find an adequate funding solution based on the merits and profitability of the individual project itself.
Will I Need Previous Experience or A Proven Track Record?
If you are applying for development finance for the first time and this is also your first time as a developer then you may encounter some level of difficulty in terms of acquiring the funding you need.
Most lenders will expect you to have at least some level of experience in the type of work you intend to carry out in order to assure them that you will realistically complete the project on time and without running over cost. They will also want to know that you have the relevant planning permission in place, whether you are converting an existing property or developing land from scratch.
As leading development finance brokers, the team at UK Property Finance are able to work around a developer’s lack of experience by ensuring they are surrounded by a team of skilled professionals who have successfully carried out and completed similar projects to the one are planning to complete.
Whether you choose to work with your own team (assuming they have demonstrable credentials and excellent references), or decide to take advantage of the professional architects, surveyors and builders that we recommend, we will work with you to ensure that both your application and the project itself are a success.