What is Development Finance?
This kind of funding is a short-term loan that is given to a company or a property developer in order to help finance a renovation project or to refurbish a property. Projects of these kinds are becoming increasingly popular in the UK, with GOV.UK reporting that in 2017 district level planning authorities have granted a whopping 49,600 decisions on residential developments, and over 10,2000 for commercial development builds.
Development finance can help with both construction costs as well as purchasing the house and it can be used to help with a new build or an existing property. There are different types of development finance available depending on your needs and whether or not the funding is needed for a residential or commercial property.
Residential Property Development FInance
Whether you are looking to renovate, refurbish or buy just a single residential property, or are considering large-scale multi-unit residential complexes, there is a development finance option for you. We work with a number of leading loan lenders so we can help you find the right company for you to help with construction a residential building or to purchase the building on a more flexible basis, regardless of whether it’s a flat, a house, a block of flats or even a mansion.
Once the necessary work has been carried out on the residential property you have bought, you then have multiple choices as a developer as to your next step: you could choose to sell these renovated properties at a higher value than you bought them at, or you may decide to rent them out for a period of time to gain additional income.
Commercial property development finance
Perhaps you are looking for funding in order to renovate or refurbish offices, shops, or even vacant land, we work with specialists in commercial property developers who can help you get the funding you need to carry out the reparation work you need to do as a developer. The bridging lenders we work with can help you to finance a number of different things when it comes to commercial properties: whether it be simply updating the aesthetics of the store or house, or to carry out necessary electrical work or plumbing, they will be able to help you.
New build finance
If you are looking to knock down an existing property and build upon it, or you are looking to build a house on a vacant plot of land, there are a number of new build finance schemes on the market to help. This includes the following:
- Equity loans with an interest-free period of over five years, this is available to both existing homeowners and first-time buyers. The purchase price must be less than £600,000, and it is possible to borrow up to 20% of the purchase price, with this number increasing to 40% if you are living in London.
- Guarantor mortgages
- The Help to Buy scheme, which requires just a 5% deposit, helping first-time buyers to get themselves onto the property ladder.
How much can I borrow with development finance?
The amount of property development finance you can acquire with one of our associated lenders is depending larger on:
- A percentage of the gross development value (GDV)
- What the property valuation will be once work has been completed
Depending on the lender, this could mean that you could receive the equivalent of 60% loan to GDV, with a total of 75% for all property costs.
Generally speaking, with development finance lenders you will be able to get funding for all of the building costs for residential or commercial properties, and a small percentage of land costs. In most cases, lenders will send the money directly to the developer in instalments. This will usually be once certain stages have been completed, based on certifications from the quantity surveyor or architect on site.
What are the costs and payments involved in development finance?
Until you have received a formal offer letter, there is no requirement to pay anything to the lender. However, once you have received this letter and you accept the conditions, it will be expected that you pay a fee (known as a commitment fee) that equates to roughly 2% of the total amount loaned. Depending on the lender and the specific circumstances, there may also be an additional broker fee to pay too, which is usually around 2% too.
You will also need to take into account the solicitor and surveyor fees that will need to be paid so that valuations can be dealt with (so that you can receive development finance instalments) as well as any legal administrative duties that need to be carried out.
When it comes to interest rates, development finance lenders will charge a rate starting from 6.0% annually, but it is important to verify directly with your lender as this rate can depend on the company in question.
In terms of repaying the property development finance loan and the interest accrued, you have two options available to you. The first choice is paying in monthly instalments, the latter option is to ‘roll’ up the interest, which means that you can delay payments until the building project has been fully completed and sold. If you choose to ‘roll up’ the interest this will mean that it will be likely to be a bit more expensive than paying monthly.
How can I find a development finance lender?
As previously mentioned, we work with a number of lenders who are specialists in development finance, meaning that through our accumulated experience we can help you to find the right loan for you based on your circumstances. If you want to find out more about how we can help you finance your renovation, please contact us directly.