Property Development Finance is a form of financing particularly for developers of commercial and residential building projects.
Property development deals can consist of an assortment of short and long-term elements, including equity and mezzanine finance, plus standard bank debt. These kinds of loans have lower perceived risks for lenders because they know their customers and will recover their money when the development sells or is re-mortgaged. Property development finance is usually a short term type of financing that may be for between 18 to 24 months.
When looking to take out property development finance the most important point to remember is that the rates of interest can vary considerably. Factors which are taken into account when setting the interest rate will include your experience in property development and general credit worthiness. Rates will be based mostly on the industry sector at the time and the strength of the proposal you are putting forward. A broker can help you to get the cheapest rate of interest and the best deal when it comes to property development finance funding.
If you’re just starting out, banks will most likely require a higher level of security. This means you have to put more of your own funds into the development. However a broker is more likely to be able to negotiate this for you particularly if you have a proven track record and background in another sector.
There are varying levels of property development finance available but simply put, you can borrow up to 100% of the purchase price & 100% of the development costs. High street banks normally only grant 50/50 funding (50% for the acquisition and 50% for the building).
Bridging finance is another tool for the developer to use, particularly useful if property development finance can not be raised because of planning problems.
A commercial mortgage broker is more likely to have a greater knowledge of the complex options involved with property development finance and have better access to the marketplace.