Commercial Finance
Residential Property Development Funding
We work with a number of Development Funding partners including high street banks and specialist funders in the sector and are able to tailor structure/a package to obtain you the funding you require.
Property Development Finance is a short term loan for residential property developments. These developments take the form of:-
- New builds for detached, semi detached, townhouses and flats.
- Refurbishment and/or extension of existing properties including barn conversions
Dependent on the length of time of the project funding is provided in 2 tranches typically over a term of between 6 months and 3 years. Funding is available up to :-
- Land Loan – 70% of Land Value/Existing Property Value with Planning Permission.
- Development Loan – Up to 70% of the costs to complete the project
FACTS
Funders key Considerations
This will need to be provided upfront towards land and development costs. If the development includes phasing then contribution will be required upfront for the land, infrastructure costs and Phase 1 of the Development Costs. An example of phasing would be an 8 plot development where development is split into building and selling 4 plots before moving onto Phase 2.
Funders are going to be looking for a track record in undertaking these types of projects. If you have nt got the experience then this can be overcome if you have a Development Partner who has the experience to complete and they are tied in with a Fixed Price Contract. Being Registered with a suitable Building Warranty provider such as NHBC will provide funders with comfort in this respect.
You will need to provide a Development Appraisal which details all costs and necessary contingencies in respect of the project. You would expect a higher contingency for a conversion than a new build. Funders will appoint their own valuers to provide their assessment of whether the funding costs are realistic and what the Gross Development Value of the site will be when complete. The Gross Development Value is made up of the individual Market Values of the units. Lenders will want to limit their funding to a percentage of Gross Development Value.
The Development Loan will be drawn down in tranches. Funders will typically want to appoint their own Monitoring Surveyors to provide them with confirmation of the work being done to the necessary quality, the amount of work being done and to advise on any potential cost over runs.
This can be achieved through sale of units with full sale proceeds being taken in reduction of debt or can be geared to getting repaid at 2/3rds of the development i.e. on the sale of each property 1/3rd of the sale proceeds are returned to cash flow. If you are developing to let out then exit will be achieved through refinance on Buy to Let funding. The Development Funder would want you to evidence that this will be sufficient to repay their debt. Some Buy to Let funders will provide Development Finance.