A short-term loan for residential developments of property like construction projects, property development finance is generally advanced as a loan towards buying land and a loan in stage payments for the costs of development in the conversion of properties into HMOs (houses in multiple occupation) or flats.
Process of Development Finance
The process for applying for the property development finance online runs as follows:
- Before having a conversation with anyone, you must have an estimate of profit margin, end value, costs, viability and how long the project will take.
- Discuss your requirements with a broker or a lender who will assess the project.
- Presuming that the scheme is workable, you will receive a written quote that details the headline borrowing terms, fees and interest rate, in conjunction with a list of documents required to submit a full application.
- The application shall be finished and submitted to the lender.
- If the lender is content with the application, they will have the desire to meet you and visit the site. The website that you apply through can help you schedule the meeting in order to build a relationship between you two for better communication and understanding.
- Once the site has been visited, the lending manager will take your application to the credit committee. As soon as it is approved, the lender will issue a formal offer, subject to legal work and valuation.
- A surveyor then compiles a valuation report, which is comprehensive and covers expected demand, anticipated gross development, anticipated build costs and current value.
- Your solicitor satisfies all conditions and carries out the legal work. They will make sure you understand the loan completely after going through the terms of the agreement. Ensure that your solicitor is an experienced one.
- When this is done, the loan can be completed as the funds can be released. Remember, only the first stage of funds is released to the solicitor.
Criteria of Property Development Finance
There are various things that you must know before applying for the loan. These include:
Because of the loan taking into account the property’s future value, there is more paperwork than usual. A developer needs to provide the following before talking to a lender:
- Any planning restrictions that may be applicable
- Details of building regulations
- A copy of the permission of the planning
- Details of any other professionals who are involved in the project
- The time schedule of development
- The renovation and building costs
- The predicted final value of the property, with evidence
- The purchase price of the value (if not owned) or current value (if owned)
How much can be borrowed?
There is not really an upper limit for the loan that can be borrowed but if you wish to borrow a small amount, a refurbishment loan would be more suitable. The loan amount depends on a percentage of the GDV (gross development value) at the end of the development, currently up to a limit of 60% loan to GDV, with a limit of 75% of the total cost.
Loans are generally structured to make sure that the developer’s contribution is made use of upfront with the lender offering the majority, if not all of the costs of the building.
It is usually possible to organise a loan to finance up to 100% of the development costs of the property where the borrower is already the owner of the land on an unfettered basis.
For how much time can you borrow the loan?
Generally, a property development finance loan is arranged on an interest-only basis and the time period of the loan would typically range from 6-36 months on the basis of the nature and size of the underlying project. There are not any monthly payments since the interest is added to the loan.
When to apply for Finance?
It is extremely difficult to secure development funding without complete planning consent unless you have experience and have finished numerous development projects. Before looking for finance, it is crucial to finalise planning consents and gather all relevant documentation to show your lender.
What kind of rate can you expect to pay?
There are not any defined rates for property development finance. You will have to negotiate the best rate for each proposition in order to get the development at the best prices. However, today, a good benchmark begins from around 6.0%.
Eligibility for Development Finance
The following borrowers can be lent:
- Offshore companies
- Limited companies
- Pension schemes
- Private borrowers
Apart from this, it is necessary to be aged 18 or above in order to borrow property development finance.
In addition, you can borrow the loan if you are:
- Developing student pods
- Converting an office block to residential
- Halfway through the development and in need of funds to finish
- Building a property portfolio
- Buying at auction to renovate for a profit
- Seeking to develop your first property
- An experienced developer
Overall, the application is more likely to be approved if:
- The developer or investor has calculated all likely costs, therefore making sure that the project is workable with strong compiling evidence.
- The developer or investor can prove that a professional team will keep an eye on all works.
If you wish to get property development finance for any reason, make sure you are eligible for the loan. Once you are done, calculate the estimates of overall costs and then look for a lender or broker. Make sure your application contains evidence in order to make it successful. Do not forget to check the interest rates and negotiate with the lender. In addition, before applying, find out the relevance of the lender and their reach.