Development Finance

Property Development Finance | Compare Online Or Talk To An Expert

Compare development finance offers online in minutes or talk to an expert. Get the best deal with ABC Finance.

FIBA Member
Excellent Trustpilot rating

Helping Property Developers Since 2000

FCA Authorised – Regulated Broker

Receive your funds in as little as days

Market-leading interest rates

Experienced Advisors

Save Money With ABC Finance

ABC Finance Smiling Team Member
ABC FinanceDevelopment finance
Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in development finance

In this guide, we deep dive into the world of property development finance. If you’re here, it’s likely because you’re considering embarking on a property development project. Whether you’re a seasoned developer or a bright-eyed beginner, this guide is designed to help you navigate the often complex landscape of development finance.

In this comprehensive guide, we’ll delve into the nitty-gritty of development finance, exploring it in a detailed, yet easy to understand way. We’ll start by demystifying what development finance is and how it works. We’ll then weigh up the advantages and disadvantages, helping you decide if it’s the right choice for your project.

But that’s not all. We’ll also guide you through the key considerations when taking out a property development loan and explore the alternatives to development funding. We’ll introduce you to the various types of finance we offer, from residential development finance to bridging finance, mortgages and beyond.

And if you’re wondering how to apply or curious about the difference between commercial and residential finance, don’t worry, we’ve got you covered there too.

So, buckle up and get ready for a deep dive into the world of development finance. Whether you’re developing apartments in the heart of the city or a green development project in the countryside, this guide is here to help you navigate your way.

What is development finance?

Property development finance is a type of funding used to finance the construction, conversion or heavy refurbishment of buildings. The loan is usually set up as a short-term loan to fund the project only during the build.

Once the project has been built out, the loan is usually repaid through the sale of the property, or refinance to a residential, or buy to let mortgage.

The terms ‘development finance’, ‘property development finance’ and ‘property development loans’ are used interchangeably and all represent the same type of borrowing.

How does development finance work?

In its simplest form, development finance is a loan that’s specifically designed to finance the development of properties.

Now, this could be anything from a single house to a whole block of apartments. The UK property market is a bustling hive of activity, and development finance is a key tool in keeping things moving.

Here’s how it works. A borrower, that’s you, approaches a bank or another lending institution with a proposal for a property development project. This could be a renovation, a green development project, or even a new build site.

You approach either a lender or intermediary. Then the bank assesses the proposal, taking into account factors like the potential value of the completed project, the borrower’s credit history, and the estimated costs of development.

Once the bank gives the green light, the funds are released in stages, not all at once. This is typically tied to key stages of the development process, such as when the foundations are built and the completion of the foundation or the roof.

This way, the bank can keep a close eye on the progress and ensure that the funds are being used appropriately.

Eye Icon

Want to find the best deal for you?

FIBA Member
Trustpilot Rating

What are the benefits of property development finance?

Take on larger projects – By taking out this type of loan, you can put far less money into a project. It’s not uncommon to only put in 10% of the cost of the project, borrowing 90% loan to cost. This means your savings don’t have to all be put into the project. This has two benefits:

You can use those funds elsewhere as other opportunities arise.
You are far less committed to the project financially. Generally, it’s never considered to be a good thing when all your eggs are in one basket, so diversification is key. Protect your savings by financing your developments.

Increase your return on investment – Property development increases your return on investment. By putting far less money into the project and only reducing the profit a small amount, you will be getting a far greater return per £ invested.

Leveraging business transactions has long been used to get the best possible return on investment and it’s no different here. You can make your money work much harder for you by taking out property development funding. Taking out finance allows you to increase your return on capital employed (ROCE) and may allow you to tackle more than one development project at once.

What are the advantages of development finance?

Now, you might be wondering, “Why should I consider development finance? What’s in it for me?” Well, there are plenty of advantages to using development financing for your property development project.

Flexible Funding

Development finance is designed to be flexible. It can be tailored to fit the specific needs of your project, whether you’re developing a single property or a whole block of apartments.

Cash Flow Management

With funds being released in stages, it’s easier to manage your cash flow and keep your project on track. No need to worry about running out of funds halfway through the project.

Profit Potential

If your development project is successful, the potential for profit can be substantial. And who doesn’t like the sound of that?

Eye Icon

Get the best deal with ABC Finance

FIBA Member
Trustpilot Rating

What are the disadvantages of financing my development?

Of course, there are also disadvantages of this sort of finance for development to consider. They are:

Risk

Property development is inherently risky. Delays, cost overruns, and changes in the property market can all impact the success of your project.

Interest and Fees

Development loans typically come with higher interest rates and fees than standard mortgages. This is because of the increased risk associated with property development.

Strict Lending Criteria

Banks and other lenders have strict criteria for development finance. This can make it difficult for less experienced developers or those with poor credit to secure funding.

Is property development financing a good idea?

So, is property development financing a good idea? Well, that depends. If you’re an experienced developer with a solid plan and a clear understanding of the risks involved, then yes, it can be a fantastic tool to help you bring your property development dreams to life.

But remember, it’s not a decision to be taken lightly. It’s important to do your homework, understand the ins and outs of development finance, and consider all the potential risks and rewards.

After all, property development is a big undertaking, but with the right planning and the right finance for your development, it can also be a big opportunity.

Of course, inexperienced developers have to start somewhere, and it can still be a good idea for them too. That said, it’s important to start at a manageable size and where possible, work with an experienced team.

What are the key considerations when taking out a property development loan?

So, you’re thinking about taking the plunge and securing a property development loan? That’s great! But before you dive in headfirst, there are a few key considerations to keep in mind. Let’s take a look, shall we?

  1. Your Financial Situation: First things first, you need to take a good, hard look at your financial situation. This includes your credit history, current income, and existing debts. Lenders will scrutinize these factors closely, so it’s best to get your ducks in a row before you apply.
  2. The Property: Next up is the property itself. What’s its current state? What’s the potential for development? Is it a green development project or a renovation? These are all questions you’ll need to answer.
  3. The Cost of Development: Don’t forget about the cost of development. This includes everything from construction costs to fees and interest payments. It’s crucial to have a clear understanding of these costs to ensure your project is financially viable.
  4. The Market: Lastly, you’ll need to consider the property market. What’s the demand like for properties in your area? What’s the potential for profit once the development is complete? A bit of market research can go a long way in ensuring the success of your project.
Eye Icon

Compare 40+ lenders in minutes

FIBA Member
Trustpilot Rating

What are the alternatives to development funding?

Now, you might be thinking, “Development finance sounds great, but are there any other options?” Well, you’re in luck! There are indeed several alternatives. Let’s take a quick look at the options.

  1. Bridging Loans: These are short-term loans designed to bridge the gap between the purchase of a new property and the sale of an existing one. Bridging can be a great option if you need funds quickly, but keep in mind that they typically come with higher interest rates.
  2. Buy-to-Let Mortgages: If you’re planning to rent out the property after development, a buy-to-let mortgage could be a good fit. These loans are specifically designed to support landlords and property investors.
  3. Auction Finance: Planning to buy a property at auction? Auction finance could be the answer. It’s a type of short-term loan that allows you to secure a property quickly, often within as little as 28 days. It is essentially a form of bridging that allows you to purchase property quickly, before doing work on it and selling out taking out a mortgage.
  4. Personal Savings or Private Investors: Last but not least, you could consider using your personal savings or seeking investment from private investors to finance your development. This can be a good option if you have a strong network and are confident in your ability to deliver a successful development project.

Remember, the best funding option to finance your development will depend on your individual circumstances and the specifics of your development project.

It’s always a good idea to seek professional advice before making a decision. After all, property development is a big undertaking, but with the right planning and the right financing, it can also be a big opportunity.

Property Development Finance


Types of Finance for Property Development that we offer

When it comes to property development, one size definitely does not fit all. That’s why we offer a range of finance options to suit your specific needs.

Residential development finance

First up, we have residential development finance. This is a loan specifically designed to fund the development of residential properties.

Whether you’re planning to build a single house or a whole block of apartments, residential development finance can provide the funds you need to get your project off the ground.

Once the development is complete, you can either sell the properties to repay the loan or refinance to a standard residential mortgage.

Bridging finance

Next on the list is bridging finance. Bridging is a short-term loan that ‘bridges’ the gap between the purchase of a new property and the sale of an existing one.

It’s a great option if you need funds quickly, but keep in mind that it typically comes with higher interest rates. So, it’s best used as a temporary solution while you secure long-term financing.

Pre-planning finance

Got your eye on a piece of land but haven’t secured planning permission yet? No problem! That’s where pre-planning finance comes in.

This type of loan can provide the funds you need to purchase the land and cover the costs of obtaining planning permission.

Once permission is granted, you can then secure development finance to fund the actual construction.

Student accommodation development finance

Student accommodation is a booming market in the UK, and with student accommodation development finance, you can get in on the action.

This type of loan is designed to fund the development of properties specifically for student accommodation.

So, whether you’re planning to build a small house for a group of students or a large block of apartments, we’ve got you covered.

Sales period loans

Last but not least, we have marketing period loans. These are designed to provide additional funding during the marketing period of a development project. This can be particularly useful if you need extra time to sell the properties and repay the development loan.

Remember, the best type of finance for you will depend on your individual circumstances and the specifics of your development project. It’s always a good idea to seek professional advice before making a decision. After all, property development is a big undertaking, but with the right planning and the right financing, it can also be a big opportunity.

The development funds release process explained

Funds are usually released in stages, with the initial release usually used to purchase the site, or refinance any existing debt on there (where it is already owned).

Once the site is secured and the initial funds have been issued, the rest of the funds are released in stages to pay for the construction. On each release, the lender will check your progress against what you told them during the application process. To avoid issues, you should work as closely to your schedule of works as possible and inform the lender as soon as possible when you deviate from it.

How much can I borrow?

The maximum borrowing is usually based around three main points:

Day one advance: This is the amount that the lender is happy to advance at the start of the loan. This figure is usually limited to 65-70% of the property value, although some lenders do not limit this figure at all.
Loan to cost: This is how much the lender is happy to advance as a percentage of the total project cost. This figure is usually between 80-90% of the total project cost.
Loan to GDV: This is the lenders maximum loan as a percentage of the final project value. Most lenders will offer between 60-70% of the gross development value (GDV).

What are the interest rates for finance on property development?

The interest charged by the lender is usually the biggest cost associated with the facility. Rates start at 6%, but rates of 7.5-9% are far more common. The lowest rates are usually associated with the lowest risk applications.

This means ones with a solid contribution from the developer, along with a very strong track record.

Although interest tends to be the largest cost, simply choosing the lowest rate isn’t always the best option. The total cost of the facility must be taken into account and consideration must be given to all fees.

Sometimes a very low rate product will work out more expensive than another product with a higher rate, but more favourable fees.

What fees & other costs are involved?

On top of the usual development finance rates, these loans tend to come with a number of fees due to their complexity. The biggest costs can be broken down into 2 parts – interest and fees. Usually, you can expect to pay the following fees:

Arrangement/facility fee – This fee is charged by the lender for arranging the facility and is usually between 1-3% of the loan amount. This is usually added to the loan and repaid at the end of the term. This fee can be based on the gross loan (the amount including all rolled-up fees and interest) or the net loan (the amount released to you), depending on the lender chosen.

Broker fees – Some brokers charge a fee for using their service, which can be up to 2% of the loan amount, usually charged as a ‘success fee’ on completion of the loan.

We expect to earn 1% on a property development application, which is often paid to us as a commission by the lender. Where we are not being paid by the lender, we will charge a separate broker fee, which we will disclose upfront, although we always try to avoid doing so.

If your application does not progress to completion, we wouldn’t charge you any fees.

Exit fees – Exit fees are often charged, usually as a percentage of either the loan amount or gross development value. This is usually paid off at the very end of the loan when you refinance or sell the completed development.

Non-utilisation fees – Non-utilisation fees are interest or charges levied against the portion of the facility that has been agreed but has not yet been borrowed. They effectively allow the lender to charge you for funds that you are yet to borrow.

Valuation fees – This is charged to appoint a RICS surveyor to undertake a survey and valuation on the site. This will cover the current value of the site along with the value when complete (known as the gross development value).

In addition, commentary will generally be provided around demand for the finished properties on market and likely marketing periods required to achieve sales reliably.

This fee is usually paid early in the application process and is only required once. Should there be an issue after the surveyor has visited, this is generally not refundable.

QS fees – In order to keep track of the build while it is ongoing, the lender will appoint a quantity surveyor or monitoring surveyor. They will provide commentary around your development costings and schedule of works. Once these have been agreed, this will become the basis for your drawdown schedule.

Throughout the build, the QS or monitoring surveyor will then visit the site periodically to ensure that the build is on track. Each time another visit is undertaken, a further fee is usually added to the loan to cover the cost.

Legal fees – These are charged by your chosen solicitor to manage the process of legally completing the loan. The lenders legal fees are also usually charged to the borrower. The cost of which must be met.

Drawdown fees – Each time a drawdown is taken, fees may become payable. As a minimum, telegraphic transfer (TT) fees are usually charged each time funds are released.

Other admin & banking fees – The other fees charged will generally be small in comparison but can add up. Sometimes admin fees will be charged by the lender or broker. This is something we never do.

An example of property development finance in practice

A client is buying a site for £1,000,000 and is looking to build out into 12×3 bedroom homes.

The build would cost £1,800,000 and it is expected to sell for £4,600,000. The client is an experienced developer with a strong net worth. They plan to sell the finished houses on the open market.

Purchase Price£1,000,000
Build Costs£1,800,000
Gross Development Value£4,600,000

The client needs to borrow both to fund the purchase, and would like to finance the full build costs, if possible. We can lend 70% of the purchase of the site and 100% of the build costs with our chosen lender, if the total borrowing is less than 90% of the total cost of the project.

Day 1 Value£1,000,000
70% of Day 1 Value£700,000
Build Costs£1,800,000
Total Loan£2,500,000

By lending 70% of the purchase price and 100% of the build costs, the client can borrow £2,500,000. This figure is just under 90% of the total project costs.

Total Project Cost£2,800,000
90% Of Total Project Cost£2,520,000
Maximum Loan£2,500,000

The £700,000 required to complete the purchase would be released upfront, with the remaining funds released over the term of the loan.

The final step is to ensure the funds borrowed fit the lender’s loan to gross development value (GDV) calculation. In this example, the client can borrow up to 75% of the gross development value.

Gross Development Value£4,600,000
Loan Amount£2,500,000
Loan to GDV54.3%

In this situation, the loan would fit the lender’s criteria and we would be able to move forward with the application.

Can you get 100% development finance?

Yes, 100% funding can be offered in 2 ways. The first is through joint venture funding, which usually involves borrowing all of the project costs and then sharing the profit with the lender once complete.

The second way is achieved by providing additional security by way of another property or land that can act as your deposit. The property used can be your own home, or an investment property.

100% development finance is only available for residential development finance projects.

Commercial vs. residential development finance

Now, let’s talk about commercial vs. residential development finance. You might be thinking, “What’s the difference?” Well, let me tell you, the difference is quite significant.

Residential development finance, as the name suggests, is designed for the development of residential properties. This could be anything from a single house to a block of apartments. The aim is to create homes for people to live in, whether they’re buying or renting.

Commercial development finance, on the other hand, is all about business. It’s designed to fund the development of commercial properties, such as offices, retail units, or industrial buildings. The aim here is to create spaces for businesses to operate.

The type of finance you choose will depend on the nature of your development project. If you’re developing homes, you’ll likely need residential development finance. If you’re developing commercial properties, you’ll need commercial development finance.

Remember, property development is a big undertaking, but with the right planning and the right financing, it can also be a big opportunity. So, whether you’re developing homes or businesses, there’s a finance option out there for you.

Who offers property development finance?

There are different types of lenders in the market, and each have their own advantages and disadvantages. The main types are the following:

High street banks – These lenders are the well-known banks that you see on the high street. They tend to take a very cautious approach when lending to property developers and will only lend to very experienced developers and usually require a large deposit. The payoff for working with a high street bank is access to very low interest rates.

Challenger banks – A group of lenders who take slightly higher risks than their high street counterparts, challenger banks are crucial for the market. They offer lending with smaller deposits and may lend in secondary locations. You’ll pay a slightly higher rate than on the high street, but will have a simpler application process and less onerous criteria.

Specialist property development finance lenders – There are a number of specialist development finance lenders, and they range in their approach to lending. Each lender usually has their own niche, whether that’s very low rates, higher gearing, flexible criteria or very fast service. The market can be tricky to navigate, so research is key.

Short-term lenders – Many bridging loan lenders offer property development finance. They’re likely to offer very simple underwriting and fast service, but usually charge higher interest rates.

How do I apply for this type of finance?

So, you’ve decided to take the plunge and apply for development finance. That’s fantastic! But you might be wondering, “How do I get started?” Well, you’re in luck, because I’m about to walk you through the process step by step. Ready? Let’s dive in!

  1. Do Your Homework: Before you apply, it’s crucial to do your homework. This means researching the property market, understanding the costs of development, and getting a clear idea of your financial situation. Remember, knowledge is power!
  2. Choose the Right Type of Finance: Next, you’ll need to decide on the type of finance that’s right for your project. This could be a residential development loan, a bridging loan, or any of the other types of finance we’ve discussed.
  3. Prepare Your Proposal: Once you’ve done your homework and chosen the right type of finance, it’s time to prepare your proposal. This should include details of the property, your development plans, and a clear financial plan.
  4. Approach a Lender: Now, it’s time to approach a lender. This could be a bank, a specialist development finance company, or another type of intermediary. They’ll review your proposal and, if everything checks out, they’ll offer you a loan.
  5. Complete the Application Process: Finally, you’ll need to complete the application process. This typically involves providing further information and documentation, undergoing a credit check, and possibly a valuation of the property.

And there you have it! That’s how you apply for development finance. It might seem a bit daunting, but with the right preparation and the right advice, it can be a smooth and straightforward process.

Gathering Your Documents for Development Finance: A Comprehensive Guide

When it comes to securing finance for your development project, the first step on this exciting journey is gathering the necessary documents. This process might seem daunting, but fear not! We’re here to guide you every step of the way.

Essential Documents for Your Loan Application

Here’s a handy list of the documents you’ll need to have at your fingertips when applying for your development finance:

  1. Business Plan: This document is crucial as it outlines your development project in detail. It should include information about the custom build you’re planning, the estimated build cost, and the timeline for completion.
  2. Cost Breakdown: You’ll need to provide a detailed breakdown of all the costs associated with your development. This includes everything from construction costs to legal fees.
  3. Planning Consent: If your development requires planning consent, you’ll need to provide a copy of this document. It’s a key piece of the puzzle that lenders will look for when offering finance.
  4. Proof of Track Record: If your development business has a strong track record, it’s worth providing documents to support this. It could be previous projects you’ve completed or financial statements showing your business’s performance.
  5. Personal Identification Documents: These are standard for any loan application. They help lenders verify your identity and residential status.

Remember, every development is unique, and so the documents required to get finance might vary slightly. It’s always a good idea to check with your lender or mortgage advisor for a comprehensive list tailored to your specific project.

Leveraging Your Strong Track Record for Better Deals

If your development business has a strong track record of building and refurbishment, you’re in a great position. Lenders love stability and a proven history of successful projects. This track record not only shows your ability to manage and complete developments but also your ability to repay loans on time.

So, will you get a better deal? In many cases, the answer is yes. Lenders often offer more favourable terms to businesses with a solid history of successful developments. This could mean lower interest rates, more flexible terms, lower capital outlay, or a larger loan amount.

However, it’s important to remember that each lender has their own criteria. While a strong track record can certainly support your application, other factors such as the viability of the project, market conditions, and your financial health will also play a role in the final offer.

In conclusion, when you build a strong track record, it can indeed open doors to better deals. But it’s just one piece of the puzzle. To increase your chances of securing the best possible terms for your development finance, ensure you present a well-prepared, comprehensive loan application.

Stay tuned for more insights on how to navigate the world of development finance. From bridging loans to commercial mortgages, we’ve got you covered with expert advice and support.

Frequently Asked Questions

Here are some of the common questions that we receive.

Property development can be a very profitable industry, although it can’t be considered easy, or risk free – especially for first time developers. Building a property is very complex and there’s lots of things that can go wrong, so be prepared for a steep learning curve.

Given time, many property developers learn how to avoid, or manage these issues and their schemes become more profitable.

Managed well, property development can be extremely profitable.

Most developers start small, either through refurbishing and selling property for a profit, or converting property where profitable. The key when starting out is research – read, watch videos, attend courses and seek out advice from experts.

Repayment of the loan generally happens after the completion of the properties. Although this is the case, some finance providers will consider refinance to development exit finance as soon as the properties are wind and watertight. This may allow you to save money, release capital or even tide you over with bridging while waiting for a mortgage to be arranged.

Schemes are usually repaid through one of three main routes:

Sale of the properties – the properties are sold, and the loan is repaid as sales complete. In most cases, 100% of the sales proceeds are assigned to repay the loan, with your funds coming once the lender has been repaid.

Refinance to development exit finance – As mentioned above, these loans can be used to fund the final stages of the build, or the sales period. Refinance to development exit finance is usually done to either secure a lower rate or to release capital from the project. This enables you to move onto the next scheme. In addition to this, this type of funder may allow you to keep a proportion of the sales proceeds, which can really help cash flow.

Refinance to a buy to let or commercial mortgage – Where the properties are to be retained, refinance to longer term debt is usually the most suitable exit strategy. Commonly, this is usually either a residential mortgage, buy to let mortgage or even commercial mortgages.

Sometimes a combination of these methods is used, allowing the developer to sell some units on completion and refinance others. This is common where some properties are to be retained and let, or off plan sales were already agreed for some units.

Yes, we can fund applications from borrowers with a history of missed payments, defaults, CCJs, settled IVAs and even historic bankruptcies.

We have successfully arranged funding for developers with previously failed developments.

In these situations, the lender will want any previous adverse credit or failed schemes to be explained. Your chances of success will be greatly improved by producing a write up on any previous issues and providing it upfront to the lender.

This will give them greater confidence that you’ve faced the issue and are less likely to find yourself back in the same position in the future.

Yes, we can fund applications from borrowers with a history of missed payments, defaults, CCJs, settled IVAs and even historic bankruptcies.

We have successfully arranged funding for developers with previously failed developments.

In these situations, the lender will want any previous adverse credit or failed schemes to be explained. Your chances of success will be greatly improved by producing a write up on any previous issues and providing it upfront to the lender.

This will give them greater confidence that you’ve faced the issue and are less likely to find yourself back in the same position in the future.

Yes, funding for conversion schemes can be funded without issue. Permitted development schemes are very popular, and can be highly profitable. As such, there are many lenders who are keen to work on these projects.

We can fund these schemes for both experienced and inexperienced applicants.

Depending on the level of works involved, you may save money by funding the scheme using heavy refurbishment finance.

Should you choose to work with us, we compare both options for you, looking at any opportunity to save you money.

This is a surprisingly tricky area of the market; lenders are generally very cautious about taking on part-built projects. This is because they have had no sight of the scheme during the build and have no monitoring reports to check the quality of work done.

Where one lender is being repaid and another taking over, this may be easier to fund as the new lender can see the monitoring surveyor or QS reports. Where no lender is in place, the new lender will want to ensure that as much information about the build up to this point as possible is available.

Although these schemes are more difficult to fund, we do regularly fund them and should be able to help.

There are hundreds of different property development loans out there and they cover almost all the property development arena.

There are specialist development funding lenders in the market who are willing to lend to inexperienced developers, people without a deposit and on difficult sites. Whatever your circumstances, we will usually have a lender for you.

The key factors in the success of a property development loan application are that the site is profitable, the build is realistic and that there is demand for the finished product.

Of course, if you aren’t looking to take on joint-venture finance, the ability to fund the deposit will also be a major factor in the lending decision.

Completion of your application is usually achieved in around 6 weeks. If you need the application to be wrapped up particularly quickly, inform your adviser upfront. If your deadline is particularly tight, we will mark your application as urgent to ensure you can draw down your funds in time.

This type of finance is usually only usually available for sites with full planning permission. If you want to borrow before you have planning, you should consider planning gain finance.

You should submit your application early to allow for any delays. This can be complex, and delays can occur where new information comes to light. Our advisers can arrange your application while you wait for planning permission.

Although some lenders do expect you to make payments during the term of the loan, this is rare. Most lenders allow you to roll-up the interest during the loan term.

The interest is then paid when the loan is repaid.

Some lenders will allow you to pay the interest charges monthly, however this is far from common and can complicate things. The lender would need to see proof of income to support this and in practice it’s often difficult to meet the payments as cash flow is often stretched during construction.

We can fund these development schemes for you, although for these types of project, bridging finance is usually a more suitable option.

We can fund a proportion of the purchase price and usually the full cost of development works, where required.

There is a big crossover between property development loans and bridging loans, especially when looking at funding a site through planning, before building it out or refurbishing the property.

The key factor is how heavy the development work involved is going to be. If there is a significant extension (40% of the floor space or more) then you are likely to need a property development loan.

Ground-up development will always require property a bespoke property development product, and conversions with no extension may qualify for either product. When it comes to bridging, conversion projects usually require property refurbishment loans. This is especially true of commercial to residential conversion refurbishment projects.

Of course, we support you to get the best finance quotes on your projects whether it’s bridging, traditional finance for development or even mortgages to refinance a completed scheme.

The stages are agreed between yourself and the lender based on your schedule of works and costs. This will lead to natural points at which development funding is needed to allow you to successfully manage your cash flow.

Each project will run differently and as such, funding will generally be based on what allows you to complete your project as quickly and efficiently as possible.

In terms of the maximum amount released by stage, some lenders restrict funding to a percentage of the current value, as stated by a monitoring surveyor. This method is commonly used for funding smaller schemes.

For larger schemes, the lender will usually ignore the current value, focussing solely on the GDV and your success in sticking to the build programme. This method is checked by a QS (quantity surveyor) and removes the risk of the property valuing at less than expected during the build, therefore starving the development project of cash flow.

There are different types of lenders in the development market, and each have their own advantages and disadvantages. The main types are the following:

High street banks – These lenders are the well-known banks that you see on the high street. They tend to take a very cautious approach when lending to property developers and will only lend to very experienced developers and usually require a large deposit, and less finance. The payoff for working with a high street bank is access to very low interest rates, but a larger capital outlay.

Challenger banks – A group of lenders who take slightly higher risks than their high street counterparts, challenger banks are crucial for the market. They offer lending with smaller deposits and may lend in secondary locations. You’ll pay a slightly higher rate than on the high street, but will have a simpler application process and less onerous criteria.

Specialist property development finance lenders – There are a number of specialist development finance lenders, and they range in their approach to lending. Each lender usually has their own niche, whether that’s very low rates, higher gearing, flexible criteria or very fast service. The market can be tricky to navigate, so research is key.

Short-term lenders – Many bridging loan lenders offer property development finance. They’re likely to offer very simple underwriting and fast service, but usually charge higher interest rates.

A broker’s job is to help to match you with the most suitable lender for your circumstances. It’s important that you work with an experienced broker, as property development loans are complex.

As this type of borrowing works in a very specialist way, an experienced broker will help you to navigate through the application process and can save you time and hassle. An inexperienced broker will simply add another layer to an already complex situation, so research is key.

We’ve been arranging property development finance for over 20 years.


Keep reading – Development Finance Guides

Want help finding your perfect solution?

Request a callback from our team of experts at a time convenient for you.