Our guide to understanding property development finance...

understanding property development finance

If you are looking to do a property development many developers know that there are a lot of funding options out there. The question is how do you find the best funding option available…

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What is property development finance?

Property development finance is typically short-term finance for your new build, refurbishment or conversion project. The finance is secured with a first legal charge over the property you are developing, typically for a 12 to 18 month period. You can typically get the full build costs funded and up to 70% of the purchase price, depending on the project.

The build costs will be funded in stages throughout the development and you will only be charged interest on the funds drawn down. Typically, interest is rolled up and paid on exit of the loan facility.

As this is short-term loan facility it will be at a higher interest rate than a standard long-term mortgage. It is therefore important to have a strong exit strategy in place for completion of your project. Typically exit strategies will either be:

What are typical rates for property development loans?

There are no standard rates for property development finance deals and it depends on the specifics of the project. For example, a lot of the larger lenders who offer low rates have a minimum loan facility of £500,000; thus, building loans smaller than this tend to be at a higher interest rate.

Interest rates can start at 0.55% per month for development finance and can go up to around 1.5% for the more expensive lenders. As FCA authorised brokers, Turnbridge will look throughout the market and look to find you the most competitive loan facilities for you project.

What loan-to-values can I get on property development finance?

Property development loans are typically based as a percentage of Gross Development Value (GDV), which is the end value of the project. Lenders will also have a maximum loan-to-value which they can’t exceed at any point of the loan i.e. what the surveyor values the property at on inspection. On a refurbishment loan there are lenders which will go up to 75% loan-to-value. On a new build project, the maximum your likely to get is 65% of GDV. There sometimes can be potential to use mezzanine finance to secure any short-falls in equity.

Turnbridge also has access to some Equity Investors who would be able to provide 100% of the funding on a Joint Venture basis for the right project.

What is the process of getting property development finance with Turnbridge?

We will initially look to find out the relevant information of your development project to enable us to get you some quotations to consider.

We will require the following basic information:

Once we have this information we will go to our substantial panel of lenders and find you the best quotations. We will then send them you the indictive offers for you to review.

If you are interested in any of the offers, we will then look to take you through the application process to get you a full offer.

All lenders will require an initial valuation of the plot and to instruct a solicitor to represent them registering their 1st legal charge on the title. You will also be required to be represented by a solicitor. There are a few lenders who offer joint-representative solicitors.

On completion of registering the charge that is when your first funds will be released. Most lenders transfer the first monies through their solicitors first. The remaining funds will the be released in stages throughout the build. Typically on inspection from their surveyor.

At Turnbridge we would be delighted to discuss any property development finance queries you have, please don't hesitate to contact us on 01244 956 740.