What are UK Property Development Loans?
Property Development Finance and Property Development Loans are short-term funding options, used to develop either an existing building, i.e. refurbishment, conversion, or a new build development. They can also be for residential houses, shops, offices, industrial buildings. It can be for investment purposes or owner occupied. Development Loans are usually taken over a period of between 6-18 months. This really depends on the type of Development; with a light refurbishment it would be as little as 3 months, and with a larger scheme up to 18 months.
Bridging finance for development is used to build a new building or convert an existing building. You can be an experienced developer/builder or a first time developer wanting to start developing:
The main to remember with any Development Funding is that you will need to allow for a reasonable re-sales period to be factored into the loan period. If you do not take this into account and your properties have not sold within the agreed loan facility, you could end up paying for another arrangement fee to extend your Development Loan.
How Do Property Development Loans Work?
Up until the financial crisis in 2007 most Property Development Loans were made by banks, even developers with little or no experience could walk into their local branch and arrange Development Finance over the counter. This all changed after the financial crash when high street banks completely withdrew from lending, and as such, it was nearly impossible to arrange any type of Property Development Loan.
As always when a void opens up in a marketplace, bridging loan companies and specialist lenders stepped in to offer Property Development Loans where the banks had withdrew. These were expensive but in the circumstances, developers had little choice but to turn to the new lenders for their Development Finance. The only other option was to stop developing and as such the extra cost was soon factored into the Loan appraisal and the market gradually began to recover.
As the market began to recover in certain areas of the country, banks began to offer existing customers Development Finance again. However, they would not consider clients from other banks and developers had to have a solid track record of completed schemes before they would even look at deals. In the meantime, the specialist lenders and bridging loan Companies went from strength to strength, rolling out many new products in an effort to compete with each other for business.
Although taking out Development Finance was expensive, at least it was available. In addition, they offered many more Development Finance Options that banks would not, including Development Finance for first-time developers with little or no track record.
Property Development Finance What Loan to Value?
Property Development Loans can be arranged at up to 90% of costs from specialist Specialist Development Finance Lenders. Usually, if you got an offer of development Finance from a bank, they normally want you to put your 40% cash in on day one. However, the interest rates are higher than with a High Street Bank. Most Property Developers are happy to absorb the extra cost, as it allows them to make their cash go further, i.e. they can do two developments rather than one. Even experienced property developers who can obtain Funding from their banks are choosing this option for their Development Finance, in this way they can preserve as much of their cash as possible and build more schemes. The site would need to have planning in place or can be agreed subject to planning. One can also borrow up to a 100% of the build cost provided that it is within 60% – 70% of Gross Development value (GDV) depending on the lender and experience (set on a case by case basis). Maximum term you can borrow is between 12- 24 months. Exit is usually sale of properties or refinancing.
How do I get Development Funding?
As with most things, it’s all about presentation and with most Development Loans you only get one shot at it, so it’s important that you get it right the first time. It’s best to use a specialist broker who is experienced in presenting schemes to the Lenders; they will package your deal and present it on a selective basis to the most suitable lender. There are many lenders offering Development Funding and they all have their favorite type of project and or locations that they are comfortable with. We have many years’ experience in dealing with lenders in this sector.
What Costs Should I Expect on a Development Finance Loan?
This is dependent on the experience of the property developer. Rates can be as low as 4% pa and they can go as high as 20% pa for say an ex-bankrupt, so the range can be anywhere in between. Also, most lenders charge an arrangement fee of between 1-2% of the loan amount. Some Lenders also charge an exit fee, although not all. This is usually a percentage of the GDV (gross development value), and around 1% to 1.25% depending on the Development Loan period, i.e. 1% of gross development value for a 12-month loan 1.25 % of GDV for an 18-month loan.
Experienced Property Developer, Development Loans
So what is an experienced Developer? It could be a builder by profession who has purchased a land and wants a loan to build houses that he will build and sell on. Generally, you will have completed at least 4 to 5 projects and sold on for a profit. A builder or building contractor would not be considered a Property Developer, neither would someone who developed and kept the finished properties in a portfolio. The key is the selling. Also, there are many skill sets that a Developer has that a Builder would not possess. As always, experience and dealing with the many pitfalls that come with Property development, selling on, keeping a tight control over costs and not overdeveloping (something some builders do proudly). It is great having the best spec and design but will it add profit?
First Time Developers With Little or No Experience
For Property Developers with little or no previous experience, we can still provide finance to get you up and running whilst most high street lenders will not entertain developers with no experience we have many other lenders who will look at the bigger picture, furthermore we are experts in dealing and packaging your loan application to give you the very best chance of getting finance for your first project, we work with all types of developer and have had many years of experience providing Development finance
Key Features of our Development Loans
- Loans from £100,000 upwards to £50m
- No tie-ins you can repay the loan without incurring any early repayment charges
- no exit fees with certain lender
- no experience is required provided a building contractors contract has been provided
- funds are available in stage payments
- can use other properties as collateral
- you are not liable to borrow the full agreed amount should you build go below budget/plan and will only pay interest on the amount borrowed
- With bridging loan for development, the valuations tend to be pricier than the other valuations and takes up to 10 days after visit to reach the lender.
Development loan rates will vary depending on the project and experience.
Whole Of Market Development Finance
Whether you have just been granted planning permission and you have been given the green light so that you can finally go ahead with a brand new building project, or you are a couple of months from the finishing line with an existing development, the chances are that you will typically need to raise additional funds at some point in order to get to the stage where everything is finally completed, with every last fixture and fitting in place.
Whether you are:
- An experienced developer
- Looking to develop your first property
- Buying at auction to refurbish and flip for a profit
- Building a property portfolio
- Part way through a development and in need of funds to complete
- Converting an office block to residential under PDR
- Developing student pods
Why use us?
- We have the experience to see the deal through to draw-down
- Dedicated Development team
- 100% of build costs funded
- Up to 75% of land purchase price and 100% with additional security
- Funding from £50,000 with no upper limit
- We are whole of market so can get the best deal for your development
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