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.
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.
What is development finance?
Development finance is a short-term loan used for residential property developments. Construction work or refurbishment projects are examples of this style of finance in action.
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.
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. 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, not the current value.
Applying for development finance involves submitting an application which:
Outlies the cost of the property.
The cost of development.
Professional fees associated with the project.
The timescale for the project.
A lender will then provide a list of requirements for the borrower, and the lender carries out a credit check.
Development finance is funding that finance brokers can access through specialist banks, some building societies and private 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 and 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.
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.
What are the 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.
By lowering the initial cash outlay and cost of finance, developers can improve their return on investment.
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.
If a project overruns it will add more cost, so you need to factor in contingencies.
How to explore your Development finance options
Call The Money Hub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated finance consultants or you can complete an enquiry form and schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.
Speaking to an experienced development finance broker is essential. Every development project is unique and therefore your finance needs to be tailored to the project. An experienced broker could give you an idea of the finance available along with all the associated costs within hours.
This can vary and is dependent upon many factors such as, how much you want to borrow, the equity/deposit you will have, the Gross Development Value (Final projected completed value) and your experience. With any development finance you will always have these costs:
Lender Arrangement Fees.
Interest for borrowing the money.
Your broker will clearly detail all associated fees and costs.