Development Finance
Development Finance provides funding specifically for property development projects involving the purchase of land and ground-up, new-build property developments. It can also provide the necessary additional capital to complete projects, known as development exit finance. The loan or facility taken out is repaid through the sale of the property, or properties, if more than one unit is being built on the same site.
Understanding Development Finance
How does Development Finance Work?
Development Finance is almost always provided as a loan facility where capital is drawn down as required and repaid on sale of the property or properties being built. There is a term by which the amount of finance provided must be repaid. There is no monthly payment paid to the finance provider but, the borrower is charged interest on the amount of capital used or outstanding. Generally speaking, the quicker the build, the faster the sale of the properties, then the lower the amount of interest paid, and all things being equal, the higher the profit margin for the developer.
How much can you borrow?
This depends, usually, on the gross development value of the property or properties being built and the total cost of the project - including the cost of the land and a contingency for the total build costs to cover any increases in costs while construction is underway. The level of experience of the developer is also important, as is the project profitability margin. While it is possible to obtain funding for First Time Developers, funders can be more conservative, often lending less to reflect the developers lack of experience and track record. Funders also require a specific level of profit or skin in the game. As a general rule, profit margins should be a minimum of 20%.
What's involved in making an application for development funding?
To submit an application, we will need to provide lenders typically with detailed project information, including a comprehensive development appraisal, evidence of planning permission and other relevant permits, cost breakdowns, and a robust exit strategy, alongside details of the developer's experience and financial standing.
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*This information is intended as a general guide only and should not be considered as a recommendation or advice regarding the suitability of any particular bridging option for your situation. All options are subject to the applicant(s) meeting the specific eligibility criteria of the lender. We recommend scheduling an appointment for personalised bridging advice tailored to your individual needs and circumstances.
