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Development Finance
in a nutshell
Development finance is a funding option used to build, convert or refurbish residential or commercial property. It is often used to pay for the purchase and construction costs of a project.
Development loans can be used for any part of a project, from purchasing a site to helping fund the final phases. These loans vary in term from 6-24 months, depending on the time and the nature of the project. A minor refurbishment may not require the amount of time that a ground-up development will need, due to the scope of the works.
Most of the time a development loan will have retained or rolled up interest, where the borrower is not required to make monthly payments to the lender, but upon conclusion of the loan, the entire capital and interest will be settled.
Lenders will take charge over the property and the company borrowing, whilst the loan is active. Whilst the development is ongoing, the lender will instruct a Monitoring Surveyor to oversee the project and the funding is usually provided in tranches; which are determined by the phases of the project.
It is very important to give any lender an idea of what your exit strategy is. The most common exit strategies are; sale, using proceeds from the sale of the complete project to settle the loan; or refinance, onto a longer-term mortgage product.
Some of our lenders
Speed
Development finance can usually be arranged very quickly, certainly faster than you would expect with a mortgage application.
Low interest
Interest rates for development finance are usually not particularly high. Experienced developers can expect to obtain lower rates than inexperienced developers, and rates might also be lower for larger projects. If you borrow a lower proportion of the gross development value (GDV), then you might also pay a lower rate.
Rolled up interest
With development finance, you don’t usually need to make regular monthly repayments. Instead, the interest ‘rolls-up’, and you repay all of the capital and interest in a single payment at the end of the term.
Multiple projects
You can do multiple projects with the same capital. Instead of wrapping all your funds into one project, if you finance it you can lower your exposure and utilise the capital elsewhere.
