A Beginners Guide to Development Finance

There are several exciting opportunities – for new and existing property developers - including energy-efficient developments, conversions of retail units to flats and proposed reforms of the planning system by the government.

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As a result, the team here at Enterprise Finance are seeing an increase in development enquiries so we have created this short introduction to development finance to help clients – existing and new – understand the type of projects that development finance can be used for, the costs involved and how the funds are paid.

Quick links

What is development finance?


What can development finance be used for?


What are the different types of development finance?


How does development finance work?


What are the costs involved in development finance?


How can Enterprise Finance help?


What is development finance?

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Property development finance is a type of short-term, secured finance that is used for many small, medium, and large-scale property projects, including renovations, office block conversions or to purchase and build on previously undeveloped land from the ground up.

Development finance is used by many different types of people from private individuals to portfolio developers and small to large companies.

Unlike a traditional mortgage, development finance is a short to medium-term loan that is secured against the projected gross value rather than the current value of the land/property. It can be complicated so it is beneficial to use an experienced broker, like Enterprise Finance.

What can development finance be used for?

  • Residential property – development finance may be used to build one or more houses, convert an office block or retail unit into houses/flats, build an apartment block or renovate a residential property. This can be used by developers looking to sell or rent the property or individuals looking to build their dream home.
  • Commercial property development – used to build or convert properties that can be used for offices, retail, and leisure – including mixed office and retail.

Light redevelopment /refurbishment properties which include aesthetic and non-major structural are better suited to alternative short-term funding such as bridging finance which Enterprise can also help you with.

If you are unsure which type of finance is most suitable for your case then please get in touch with the Enterprise Finance team to discuss in more detail.

What are the different types of development finance?

  • Ground-up development – this type of finance will fund a project from the purchase of land through to completion of project. For example, the purchase of undeveloped land to build a cluster of new homes.
  • Heavy refurbishment/renovation – this type of finance will fund projects that involve major building works to an existing building. For example, converting a retail unit into a residential property.

How does development finance work?

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The amount a lender will be prepared to lend will be based on the gross development value (GDV) of a project, this is the estimated value of the development upon completion.

Ultimately this will allow your lender to assess the viability of the project and decide on the loan amount, with many lenders rejecting applications if the total costs of the project exceed 75% of the GDV.

The minimum loan amount varies from lender to lender, with some lending from £50,000 and others only offering their best interest rates for deals over £500,000.

Once finance has been agreed, the lender will release an initial percentage of the loan, with further funds being released at intervals.

The lender will normally re-inspect the development before further funds are released. They will want to ensure that there is sufficient value in the site.

The average term for development finance is currently 6 to 18 months, with a small number of lenders willing to offer terms over 24 months.

Interest is retained by the lender, so unlike a traditional loan, there are no monthly repayments. Instead, the interest is added to the loan value and redeemed when the development has been completed.

When funds are being released at intervals, interest will only be applied to the funds that have been released.

There is normally an agreed grace period to allow time for the property to be sold or refinanced once the development has been completed.

For developments of more than one unit, it is important to discuss how the loan will be repaid with the lender as it is unlikely all units will sell on the same day. Some lenders will allow you to repay the loan in stages.

What are the costs involved in development finance?

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Different lenders will have their own eligibility checks. They will typically check the borrowers:

There are a number of costs to be aware of when obtaining development finance:

  • Lender arrangement fee – this is normally charged by the lender as a set-up fee for the loan, usually 1 – 2% of the value of the loan.
  • Professional fees – there are several professions involved in a development project including architects, solicitors, and project managers. These fees will depend on the size of the project, but it is worth noting that they can be included in the loan amount.
  • Interest Rates- as mentioned in the previous section, the lender will charge a monthly interest rate, however this will be ‘rolled up’ and payable as part of the final outstanding amount once the development has completed.
  • Broker fees – in return for managing an application and sourcing the most suitable lenders, brokers will usually charge a fee of around 1%, however this will vary from lender to lender.
  • Valuation fees – the lender will require a third party to undertake an initial valuation, which usually includes a valuation prediction for the finished project.
  • Monitoring fees – lenders will want to monitor the progress of the development to ensure the work is going to plan and being completed to a high standard.
  • Exit fees – again these fees will vary from lender to lender. The exit fee is typically 1-2% of either the GDV or the total loan amount.

How can Enterprise Finance help?

As a leading specialist finance distributor, we have a network of leading development finance providers connecting clients to a comprehensive range of products for all types of development projects.

Our key features:

  • Efficient application process.
  • Loans from £150,000 to £25,000,000 available.
  • Build costs available up to 100%.
  • GDV available up to 65%.
  • Land purchase price available up to 60%.
  • Highly personal service from start to finish.
  • 24-month terms available.

For more information on development finance or to submit a case, drop us a message or call us on 020 8731 5333.