In general terms, development finance typically takes the form of a short term bridging loan which enables a developer or investor to purchase and/or develop residential or commercial property. Within this broad spectrum there are two main areas – newbuild property development and the refurbishment of existing properties.
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For those looking at newbuild schemes, finance for development can be tailored to facilitate the purchase of the land (with or without planning permission) and then provide the funds towards the cost of the build – in some cases 100% of these costs can be provided. Specific property finance solutions are available through a range of lenders and here at UK Property Finance we deal with the full range – from High Street banks to niche development finance lenders.
Clients looking to refurbish properties – perhaps converting an office block into apartments or a single dwelling into individual flats – there is a good choice of lenders who will provide the funding required. In some cases the same lenders who provide funds for newbuilds will deal with these refurbishment projects. As above, funds can be arranged for the purchase of the property and the costs of refurbishment and additionally, UK Property Finance can then arrange the longer term funding required if the refurbished properties are being retained as investments.
In all cases, the finance for development will be structured to ensure you have the funds available when you need them – in most cases after an initial drawdown on Day 1, funds will be drawn in tranches as the project proceeds. In this way, you only pay interest on the funds you use rather than the full amount. As experts in arranging these deals, we can assist you in drawing up the timing of funds and ensure you have a thorough financial plan which helps you to complete the deal on time and within budget.
If you apply for a property development loan then you will need to present a package of documents to the development finance lenders which confirm the viability of the project – these will include Planning Permissions, costings for the build/refurbishment, architect drawings/plans, estate agent confirmation of sale/rental prices of the finished properties and details of your experience in the market (if you dont have experience then we can still source the funding – you will just need to involve an experience professional team who can advise you throughout the process). The team at UK Property Finance will be on hand throughout the process to assist in packaging the case for presentation to the lenders.
Release of funds through property development finance
Property development finance is usually released in stages depending on the current value of the project at the time of valuation. The stages considered by lenders are:
- Land value – we can raise against either the purchase cost or the value of the land (if already owned).
- Initial costs including the footings and foundations.
- Wall plate which is the basic external structure of the project.
- Wind and water tight which primarily means the windows and the roof.
- 1st fix which includes the plastering and the initial installation of the electrics.
- 2nd fix to complete the electrics and any finishing work required such as painting and decorating, landscaping etc.
Anything is possible and the lender will first look at the following key data before deciding on whether development finance is appropriate:
- Initial site valuation or cost.
- The “build cost” from start to finish.
- Gross Development Value (GDV) – this is the expected sales value or revenue of your project.
Before agreeing most lenders would expect that each of the above are equally split for the project to make sense i.e.
|Land Value (stage 1)||£1,000,000||Maximum release available – £600/700,000|
|Total build costs (stages 2 to 6)||£1,000,000||Maximum release available – £600/700,000|
Development finance payments will normally be released either:
– in advance of the work commencing depending on loan amount and the value of the project at the time.
– in arrears i.e. the borrower will claim back for work that has already been done.
An independent surveyor is used to determine the valuation of the project at each stage prior to release of the property development finance funds and the maximum release depending on the project will generally not exceed 60 – 70% of the value at the time, unless additional security is available. The surveyor will also check that the completed work has been done to the required agreed standards and that any essential permissions have been gained.
Before agreeing to fund development finance, lenders would usually require a borrower with experience although this is not always the case and each scenario will be looked at on its own merits.