Property Development Finance Explained

Unsure what a property development loan could do for your project? We’ve got all the information you need

You have to be passionate about property in order to take on a large-scale building project. Such a task requires a huge amount of planning, preparation, and execution. For example, if you were building for a specific purpose such as a living facility, then you might have to spend some time speaking to assisted living development consultants and planning all the finer details with your architect. If you consider yourself part of this passionate and creative group, you know how it feels to want every aspect of your project to go smoothly. The last thing you want is for a problem with funding to stop you from turning your vision into a reality.

Whether a housing project, an office block or something else entirely, you have an end goal in mind and you’ll do whatever it takes to get there. Be it taking the help of experts at Social Housing Co. or elsewhere, or arranging for it yourself, you want the project completed. For many people in this situation, property development finance can provide the extra funds and security needed in order to complete the project without hiccups or stress.

But what exactly is property development finance, and how can it help you take the next step with your building project? This is property development finance, explained.

What is property development finance?

Whether you’re hoping to undertake a new build project, a conversion, a renovation, a part-build project or a ground-up development, property development finance is there to help you with the funding when you need it. It is designed for use in either major new building projects or comprehensive renovations, and offers a fast route to necessary finances which can be obtained in a short time frame in order to cover short term costs.

Property development loans can be used to provide finance for residential, commercial and mixed-use developments. It is a kind of bridge loans designed to ‘bridge’ a gap in your finances, meaning you can afford to undertake the next phase of your project and repay your loan once you have access to the profit you’re expecting to make.

Property development loans explained

One of the most common questions surrounding property development finance is how much you can borrow. The loan amount is based on a percentage of the GDV (gross development value) at the end of the work. This usually offers a potential maximum of 60% loan to GDV, with a maximum of 75% of total costs.

For example, say a developer plans to build a set of houses with a GDV of 4.5million. The total costs involved are 3.1million ( 1.25million for land purchase and 1.85million for build costs). A lender may then offer development finance of 2.32million, set out as an initial advance of 320,000 followed by regular payments throughout the build.

Development loans are usually used for large-scale projects, while other forms of bridging finance can be sought for smaller refurbishment undertakings.

Property development finance rates

A property development loan is usually arranged on an interest only basis. The term of the loan is typically between 6 and 18 months, though this does depend on the size and nature of the project. Usually the interest can be rolled up into the loan, meaning in this case there are no monthly payments.

It’s best to first ensure that all the necessary planning permission is in place before applying for your finance. A development loan can be difficult to obtain unless planning consent has been finalised and all the necessary documentation is available.

There are no set rates when it comes to property development finance. Speaking to a trusted lender can give you the chance to talk through your project openly and discover the best route for your specific needs. Lenders can assess your application individually and work with you to determine the best way to get your project funded.