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Development Finance Broker

We specialise in helping new and experienced property developers raise bespoke finance for their projects. As a development finance broker, we are experienced in discussing projects in detail and we have access to a wide lender panel to help you source the funding you require.

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The money associated with property development is significant, so it stands to reason companies require funding assistance to finalise deals and start or continue projects. Given the sums of money involved, time constraints, and the need to find value for money, it makes sense to call on a development finance broker’s service. Property development finance is a complex lending area and requires an experienced broker and a specialist lender to help structure the deals and get you the funding terms you want to make the project happen.

What is Development Finance?

Development finance is a short-term loan used for residential property developments. Construction work or refurbishment projects – examples include:

  • Building of houses / flats
  • Commercial property being converted into flats
  • Building of commercial or mixed use property – such as commercial on the ground floor and flats above or building of a hotel or student accommodation.

How Does Development Finance Work?

The development finance availably will usually be based upon the final gross development value (GDV). This equates to the money loaned relating to the site’s worth when payments for the refurbishment or construction work are complete.

Typically we see clients borrow 60%/65% of the purchase price and then can borrow up to 70%/75% of the end GDV.

The finance is drawn down in stages, also known as tranches, and these are paid after each stage has been completed and signed off by a qualified surveyor (QS). Typically the quantity surveyor will visit the site, see the work that has been done, see the materials on the site and invoices paid, confirm the works and sign off to the lender to release the next stage of funding. This typically takes around a week to process, so really should not hold up the development.

Once the development is completed or properties within the development are complete, the finance is paid off usually by either re-financing or the sale of properties within the development.

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How Does Development Finance Work?

The Development finance availably will usually be based upon the final Gross Development Value (GDV). This equates to the money loaned relating to the site’s worth when payments for the refurbishment or construction work are complete.

Typically we see clients borrow 60%/65% of the purchase price and then can borrow up to 70%/75% of the end GDV.

The finance is drawn down in stages, also known as tranches, and these are paid after each stage has been completed and signed off by a qualified surveyor (QS). Typically the quantity surveyor will visit the site, see the work that has been done, see the materials on the site and invoices paid, confirm the works and sign off to the lender to release the next stage of funding. This typically takes around a week to process, so really should not hold up the development.

Once the development is completed or properties within the development are complete, the finance is paid off usually by either re-financing or the sale of properties within the development.

How Do You Get Development Finance?

Development finance doesn’t work the same way a traditional mortgage works. With this finance style, lenders assess the predicted value of the property when the project is complete, along with the current value, cost and estimated time of the development

Applying for development finance involves submitting an application to the lender which will detail:

  • Full development cost including all utilities, any CIL payment to the local authority, contingency (typically 10%) and professional fees involved.
  • Gross Development value (GDV) – i.e. what the site will be worth once completed.
  • Exit Strategy – how will the finance be paid off, for example, sale of properties or refinance.
  • The timescale for the project – This is to develop the site and allow a suitable timeframe for the properties to be sold or refinanced.
  • CV of experience of the borrower, or where they don’t have experience – the experience of the main contractor involved.

A lender will then provide a list of requirements & documents for the borrower, and the lender will also carry out a credit check on shareholders who own 25% or more of the company.

Development finance is funding that finance brokers can access through specialist banks and specialist lenders. This type of finance is typically made to experienced developers who have a previous track record. A handful of lenders will consider inexperienced or first-time developers, but usually, this is conditional on the borrower working with an experienced builder/contractor/ project manager. As part of any development loan application process, a lender will look at the location, planning approval, and comparable properties in the area.

If you are unable to raise the full amount of borrowing needed from the main lender, another form of finance to help with developments is Mezzanine Finance – which could provide the additional finance needed to get the project started. Most development lenders have  relationships in place with Mezzanine finance companies, who they have previously worked with, so this is a good starting point.

Useful Videos About Development Finance

Prefer to watch rather than read? Our short videos walk through the key points of development finance, from how the funding is drawn down to what lenders look for in an application.

Should Use a Development Finance Broker?

While using a broker is a sensible step with any form of loan or mortgage, it is indispensable for development finance. Many lenders will only provide development finance through a broker, so anyone looking to enhance their arranging finance chances needs to take this approach. Development finance lenders will carry out a lot of due-diligence on the transaction and these deals are bespoke, so using an experienced development finance broker is essential.

It is common for development finance to be issued to experienced developers who can point to a proven track record in these projects especially for larger scale projects £1m+.

Advantages and Disadvantages of Arranging Development Finance

Some of the leading advantages of arranging development finance include:

  • This finance allows developers to take on larger projects, which should yield larger profits.
  • Developers can retain capital and use this in other areas or projects rather than having all their money tied up in one development.
  • Developers risk less of their own money.
  • This support enhances a business’s cash flow.

Some disadvantages would include:

  • Development finance is more expensive when compared to traditional mortgages, but unfortunately mortgages will simply not lend on this type of transaction, although if you were building your own home, you should explore self build mortgages, which would be cheaper when compared to development finance.
  • If a project overruns it will add more cost, so you need to factor in contingencies.

Associated Costs with Development Finance?

There can be many costs involved, so it is really important that you are full aware of them all to make sure the project is profitable. Costs would include:

  • Lender arrangement fee – This can range from 1% to 2% and is typically built into the loan.
  • Valuation Fees – This would be an upfront cost and is dependent upon the project
  • Legal Fees for both you and the lender. Make sure you have a really experienced commercial solicitor in place as these transactions can be really quioe complex
  • Quantity Surveyor / Monitoring Surveyor – There will be an upfront cost for them to visit the site to confirm the viability of the scheme and also a cost to visit the site upon each stage drawdown. The lender may also charge an administration fee of each drawdown.
  • Broker Fees – Best to confirm how much and when payable as many brokers have different fee structures.
  • CIL Payment – Payable to the local authority typically within 60 days of the development starting.
  • Stamp duty – if you are purchasing the land / site.
  • Warranty

There maybe other costs, so make sure you get a full breakdown before committing.

Development Finance FAQ’s

Yes, but the options are narrower and the terms will reflect it. Most established development lenders want to see a track record of completed schemes, particularly on larger projects. A smaller pool of lenders will consider first-time developers, and where they do, it is usually on the condition that you have an experienced main contractor or project manager in place — effectively, the experience sits with your team rather than with you.

Expect to be asked for more detail than an experienced developer would be, including the CV of your contractor, and expect to put in more of your own money. First-time developers are often limited to a lower percentage of GDV, so a larger cash contribution is likely. Starting with a smaller, simpler scheme — a single conversion or a pair of units rather than a multi-phase site — makes the case considerably easier to place, and gives you the track record that opens up better terms next time.

Overruns are common, which is why lenders build in contingency and why you should too. What happens next depends on how far past the term you are and how the project is progressing.

If the build is going well but the term is running short, most lenders will consider an extension. This usually comes with a fee and sometimes a higher rate for the extended period, so it is not free, but it is normally the simplest route. If the build is complete and the delay is on the sales side, development exit finance can be used to repay the development lender and give you a longer, cheaper facility while the properties are marketed.

The position to avoid is reaching the end of the term with no agreed plan. Default interest rates are significantly higher than the headline rate, and in serious cases a lender can take steps to recover the debt through sale of the site. Lenders are generally pragmatic if you talk to them early — the problems arise when the first conversation happens after the term has already expired. If you can see a delay coming, raise it with your broker as soon as it becomes apparent.

There is no single figure, because development finance is assessed on two separate elements — the land or purchase price, and the build costs.

Typically you would expect to fund 35%/40% of the purchase price yourself, with the lender advancing the remaining 60%/65%. Build costs are often funded at a much higher percentage, sometimes in full, drawn down in stages as the work progresses. The overall borrowing is then capped against the end Gross Development Value, usually at 70%/75%.

In practice, this means your cash requirement is usually concentrated at the start of the project, when you are buying the site. A rough rule of thumb is that you should budget for around 25% to 35% of total project costs coming from your own funds, though this varies considerably depending on the site, the scheme and your experience. Where the deposit required is more than you have available, mezzanine finance can sometimes bridge the shortfall, though it is a more expensive form of borrowing and needs to be factored into your appraisal properly.

No. They are different products used at different points in a property’s life.

A commercial mortgage is long-term funding — often 15 to 25 years — secured against a property that is already built, income-producing, and in use. It is assessed largely on the rental income or trading profit the property generates, and is repaid from that income over the term.

Development finance is short-term, usually 12 to 24 months, and is used while a property is being built or substantially altered. There is no income to assess, so the lender looks instead at build costs, the end GDV and your exit strategy. It is drawn in stages rather than as a lump sum, and it is repaid in one go at the end, either from the sale of the completed units or by refinancing.

The two frequently follow one another. A developer building commercial units to hold rather than sell would use development finance for the build, then refinance onto a commercial mortgage once the units are complete and tenanted. That refinance is the exit strategy the development lender will want to see evidenced at the application stage.