Many people can become confused when looking to finance building work and internal improvements to properties. The development finance market is currently in a period of evolution as banks seem to be offering their best deals to the larger developers and the specialist development lenders all have very different and very specific projects and locations they are looking for. All of this makes finding the right lender for your project a real challenge.
Many lenders work on very low concentration limits in certain geographical locations, certain property types and many other factors, meaning specialist, and importantly, up to date knowledge of the market is absolutely crucial for finding the right deal quickly.
As the market continues to change, there is now a very definite split between finance for property refurbishment and raising capital to develop a new property/properties. I am now going to run through the basics of each product individually.
Property development finance
Property development finance is used to fund projects that generally involve the building or conversion of a property, such as conversion of a commercial property to flats, or building 3 houses where one stood previously.
Lenders tend to be very specialist in this area, so it is important that the project is understood and well presented by the time it reaches the lender, with realistic costings and timescales presented at the time of the initial application (of course as commercial finance brokers we can help to manage this process).
As a guide, lenders will generally offer funds in tranches, with a limited amount released on day 1 for the acquisition of the site, with funds then released at stages throughout the build, often up to 100% of the build costs for experienced developers. Care will always be taken of course to ensure the project remains at a reasonable level of funding overall, so managing not only the overall level of debt but also the cash flow at various stages of the development is key.
Property refurbishment finance
Property refurbishment finance is used for more renovation based work and generally doesn’t involve more than an extension or internal redecoration/rewiring work before looking to rent out or sell on the property for a profit.
Products tend to be designed and priced based on a monthly interest rate, which tends to increase depending on the level of work required to complete the project, light redecoration would be cheaper than a full rewire and re-plaster for example.
Generally speaking, you are able to raise in the region of 75% of the property value, with the money used to refurbish coming from the clients own resources.
Refurbishing and developing property can be a very profitable route to take, although it will always come with challenges. It is always good practice to ensure you plan ahead and manage each stage to ensure the process runs smoothly. Contact us today and we will be happy to help, whether you want us to arrange funding on a project you are working on, or simply chat through a project that is in the early stages.