What is regulated development finance?
Regulated development finance is used to fund the build of property that will be the primary dwelling of the borrower. Development finance applications become regulated if 40% or more of the property is to be used as or in connection with a dwelling.
Regulated development finance applications are usually used when a plot of land is being purchased to build a new home, or when planning has been granted for a property to be built in the garden of the client’s current home.
Regulated development finance criteria
The main criteria points to consider when taking out regulated development finance.
|1||Raise money to build your own home|
|2||Market leading interest rates|
|3||Loans from £50,000 – no maximum loan|
|4||No experience required|
|5||Terms available up to 12 months|
|6||Your exit strategy is key to the success of your application|
|7||Adverse credit considered on a case by case basis|
|8||Interest can be rolled up – no monthly payments to make|
|9||Borrow up to 100% of build costs|
How much can I borrow?
We can offer regulated development finance from £50,000 with no defined maximum loan.
The maximum loan will be decided by the value of the site at the start of the build, and the end value, also known as the GDV.
Generally speaking, the maximum loan available is 65% of the value of the project, once it’s completed.
Do I have to make payments during the loan term?
Most facilities allow you to add your monthly interest costs onto the facility amount, leaving you with no monthly repayments to make. The interest is then paid in full along with the facility when the loan is redeemed.
This relieves you of a further monthly cost at a time where your cash flow will generally be extremely challenging.
Of course, if you would rather make the monthly payments, you are able to do so, although this is rare. Where interest is paid monthly, detailed proof of income will be required to ensure that this is viable.
How are the funds released?
Funds are released in stages throughout the loan term. The exact figures on what funds can be released at each stage are calculated on a case by case basis, based on your schedule of costs and schedule of works.
Generally speaking, some funds are released upfront to acquire the site or to allow you to start works if you already own the site.
Funds are then released in stages as the build progresses, often monthly. Funds are usually released in arrears, meaning that you are reimbursed next month for the funds spent this month. As such, sound cash flow management is key during the build.
How much will it cost?
Regulated development finance is priced on a case-by-case basis and our advisors always look to secure you the lowest possible rates.
On occasion, we may be able to fund your development through a self-build mortgage, which will usually work out much cheaper.
As there are so many different routes available, immediate pricing isn’t always easy. Although, we commit to send you full terms within two hours of your enquiry.
How do I repay my loan at the end of the term?
Development finance is usually repaid through the sale of the finished properties at the end of the term. Although this is an acceptable exit strategy for regulated loans, the property is usually to be lived in at the end of the term.
Where this is the case, a mortgage is usually arranged to repay the loan. Your development finance lender will usually look for proof of this by seeing an agreement in principle from your proposed lender.
How does it compare to self-build mortgages?
While both products can provide the funding needed to build your own home, self-build mortgages are generally cheaper than development finance. As such, they should always be your first port of call.
There are a few things that could mean that it isn’t possible. The main reasons are the following:-
- You have an imminent change of circumstances – for example, adverse credit which will be off your credit file by the time that the build has finished. In this case, you may not be eligible for a mortgage today, but will be by the end of the build.
- The security is too complex for a self-build mortgage – this could be the build of two houses, of which one will be occupied, and one sold for profit.
In addition to the above, the trade-off of the low rates offered by self-build lenders is that there are usually very strict terms and conditions that may not suit all borrowers.
Another key difference is that, you are normally expected to pay the interest charged on a self-build mortgage monthly during the build, which could strain your cash flow.
What information will I have to provide?
Although each application is different, lenders will usually want to see the following before taking your application forward:Details of the project – planning documents and drawingsA schedule of worksA schedule of costsDetails of your previous development experienceDetails of your planned exit strategyAn overview of your current assets, liabilities, income and expenditure
How can I give my application the best chance of success?
Lenders will want to understand your application in as much detail as possible. By ensuring that you produce the documents above and present them upfront when your application is made, you will clearly set yourself apart from weaker applicants.
This will give your application the best chance of being approved. Furthermore, when asked for additional supporting information, make sure that you send it to the lender as quickly as possible to keep up that strong impression.
Can I use regulated development finance alongside my existing mortgage?
Not usually. While it’s possible to borrow on a second charge basis, you will usually run into trouble with your first charge mortgage lender.
The lender won’t usually be happy to consent to a second charge for development of the property. Where this is the case, the development finance lender would be unable to register their charge, and therefore unable to lend.