When trying to arrange property development finance, it pays to use a commercial finance broker. This is because a broker working with specialist lenders is able to arrange finance for all types of property development projects.
There is a variety of types of property development funding types, spanning commercial and residential development opportunities. Some examples of the types of projects that lenders will consider are:
- Property Refurbishment
- Property Conversion
- Single-plot and multi-plot New Build Schemes
- Mezzanine Finance (top-up funding)
- Brownfield Development Projects
Property Development Funding is available for private individuals, partnerships and limited companies. Although some business experience is desirable property finance can be arranged for novice and experienced developers.
A property development loan is secured against property in the same way as a mortgage. The lender secures their interest in a site by way of a legal charge over the site and will often look for additional security if the margins are tight.
This mortgage is then redeemed on the completion and subsequent sale of each unit.
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One of the most important considerations when evaluating a property development proposal is the value of the property when all the work is completed. This is often referred to as the Gross Developed Value (GDV) and lenders will use a percentage of this value to decide the upper level of funding.
High street banks typically finance around 65% of a site purchase price and 65% of the development costs. Although this is acceptable for some development projects there are plenty of developers who are unable to raise the necessary capital. This is usually because all their available capital is tied up in other projects, but there can be a number of other reasons.
Specialist property development lenders are able to offer higher levels of finance than the mainstream banks and are also able to work to tighter deadlines. Working with a commercial finance broker it should be possible to find the right lender for any viable project.
Up to 100% property development finance was widely available from property lenders however it is something of a premium. Where they exist these lenders are able to consider higher loan-to-values because they understand property development projects and are able to recognise profitable projects.
Property refurbishment projects usually involve the purchase of a residential property and some cosmetic refurbishment. Typically a new kitchen, bathroom, central heating and windows are the extent of works. Refurbishment projects usually turn round very quickly as planning permission is not typically needed.
Where there is a considerable increase in value property development loans can be based on the developed value rather than the purchase price.
Where more substantial work such as an extension, conversion of an existing property into flats, or other structural re-modelling is undertaken the funding needs to be planned accordingly. Where planning permission is required there is always the possibility of changing specifications and other delays so working with specialist property development lenders offers a real advantage.
With government policy demanding greater use of brown-field and infill sites there are more opportunities for property developers to undertake new-build projects. Property development finance can be available to fund up to 100% of the costs.