Are you considering an exciting property development project but wondering how best to raise the seed capital? A development loan could be just what you’re looking for. Let Landmark talk you through the basics.

 

Development loans are granted specifically for the development or refurbishment of residential, commercial or mixed use properties. Development finance is typically sought by experienced professional builders and developers to raise the capital that will transform their development plans into a commercial reality. Specialist development finance lenders base the rates and  terms of their loan offers on the projected value of the finished scheme.

 

How does it work?

In contrast to a traditional mortgage, development finance is a short term loan for which the lender takes the value of the completed project into account rather than the current value of the property.

 

The borrower submits a loan application stating the cost of the site or property, detailing the  development or refurbishment costs ­– including any professional fees, and outlining the build time.

There is a very strict application process and the lender will offer terms based on this information and any supporting evidence provided. They will then run credit searches on the borrower’s existing finances and past projects as evidence of their ability to pay back the loan. It is more difficult to get finance with the best terms with the poor rating.

 

Checks will also be run on similar schemes and on the development location, eg whether it is suitable for the project, commercial potential of the area etc. Once the loan has been approved the project will be regularly monitored; progress reports and financial updates will be required by the lender.

 

 

Is it right for me and my project?

Development funding is most frequently sought by builders and developers to finance extensive projects and ground-up developments. A development loan could cover both the price of the land purchase and the building costs. For example, a lender might finance 50% of a property purchase and 70% of the build costs leaving the developer to find much less starting capital, releasing cash for unexpected expenses or other projects.

 

All business finance carries with it advantages and challenges and it is imperative that you understand exactly how your chosen finance solution works and exactly what is expected of you.

 

On one hand, development finance allows you to raise capital, freeing funds for expenses, other projects, or to use as a buffer; it has the potential to provide quick access to funds and could be made available within 48 hours; it is a short term solution meaning you won’t be tied to a loan for a long period; it can cover the purchase of the property and/or be used for the cost of contractors and materials.

On the other hand, you must provide comprehensive and detailed paperwork for the duration of the project; you will have to negotiate your interest rate with the lender; and you will have to pay fixed expenses such as arrangement and early repayment charge which will are likely to be greater than those on a commercial mortgage.

 

What will I need?

The nature of this finance means the borrower must provide a great deal of paperwork to support the application as the lender needs to see all the figures involved in order to make a suitable loan offer. The lender must consider the future value and saleability/turnover of the completed project for the short-term loan to be repaid. This includes, but is not limited to:

 

• The current value or purchase price of the property or site
• The projected end value/turnover of the scheme
• The build or renovation costs
• A timeline for the development
• A CV of experience/past projects
• Details of professionals/contractors involved
• A copy of the relevant planning permission
• Building regulations and proof of compliance
• Details of any Section 106s or any planning restrictions if applicable.

 

If you are confident you will be able to repay the loan once the project is finished, if you know you can easily provide all the necessary paperwork and progress reports, and you are absolutely sure that a short term finance solution is what’s best for your project, then a development loan could be the support you need to see your project through from start to finish.

 

For smaller, or personal and private, projects you may find that a bridging loan is more suitable. At Landmark, we can source finance that is precisely tailored to your needs.

 

We refer any development finance to our sister company Landmark Specialist Finance Limited

Landmark Private Finance Ltd and Landmark Specialist Finance Limited are two separate entities

The FCA does not regulate commercial mortgage, development finance and we act as introducers for them.

The FCA does not regulate some forms of bridging loans.

Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Changes in the exchange rate may increase the sterling equivalent of your debt.