100% Property Development Finance

Property development finance is the term used by lenders and brokers to describe the funding solutions to help property developers undertake projects.

These projects can range from refurbishment of a residential dwelling to new-build schemes and commercial development.

Varying levels of funding is available depending on the type of project, for example self-build schemes by homeowners or multi-unit large-scale developments by experienced property developers.

What types of project would qualify for 100%  property development finance?

The challenge for the property developer is to fund the acquisition of suitable property and have enough working capital left to finance the development work. Historically banks would lend around 70% of the purchase price and 70% build costs. However, these loans are usually reserved for experienced developers or individuals with a high net worth.

There are now several specialist property development lenders who will consider loans far in excess of the bank solution. Many of these specialist lenders will fund 70% of the site value and 100% development finance for the build costs.  Some will even lend 100% of the full costs, including professional fees and interest roll-up.

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Who would need 100% funding?

Perhaps more than any other business cash flow is vital for property developers and having substantial amounts of cash tied-up in a property can seriously hinder business growth.

It is worth stressing that a property development lender is not likely to provide 100% property development finance just because the developer is short of money!  More likely the property developer may have all their available cash committed to an existing project, or is developing an existing business by taking on a larger type of project.

A property developer can be an individual, partnership or company and broadly speaking property development projects can be split in to three categories:

  • A property refurbishment project would involve the purchase of a property and straight forward refurbishment. These project usually turn round very quickly as planning permission is not generally needed.
  • Property conversion projects would involve more substantial work such as an extension, conversion of an existing property into flats, or some other structural re-modelling. This type of property conversion will almost always involve planning consent, building control and sub-contractors.
  • New Build property development is usually taken on by experienced property professionals. The site may be purchased with either full or outline planning permission which means that cash can be committed to these projects for long periods.
True 100% property development finance includes the purchase of the site, the build costs, professional fees and sometimes interest roll-up. This type of funding is available for property refurbishment, conversion projects and new-build schemes. Although the developer should be able to demonstrate a business track record they do not necessarily need a wealth of experience as the lender will monitor and support the project quite closely.To qualify for 100% property development funding any project would need to demonstrate a good profit margin and be in a geographical area known to have a buoyant property market. In essence the lender wants to reduce the risk that a loan will be outstanding for long beyond the development phase.

So, in conclusion 100% property development funding does exist, whether the developer is looking for just the build costs or full funding for the whole project. Naturally these higher levels of funding come at a premium in terms of interest rates. However this should be considered against the cost of having all the available capital tied up in a single project. The main benefit for considering 100% property development funding is the ability of take on new projects whilst completing a current scheme.