People tend to confuse Development Finance with Commercial mortgages, which is more than easily done as the two do tend to overlap one another. Development finance is where an individual or company/business is looking to develop property/properties and have some capital but need a short term loan to help complete the development. Depending upon the lender and the circumstance, such loans normally span between 12-24 months. Commercial Mortgages are different in that they are a form of replacing the short term development finance loan when additional funds are needed. Hence, Development Finance and Commercial Mortgages do tend to overlap. Despite the “Credit Crunch”, Development Finance is rapidly becoming more main-stream and is a very specific type of finance. Development finance is an extremely active market, with businesses wanting to expand for survival during the economic downturn. There are many high street lenders out there and therefore there is a wide variety of development finance specialists available to the consumer. It is recommended that you seek professional advice in order to find the right deal for you.
Development Finance can be used for Property Refurbishment, New Build Projects and Property Conversions but can also be used as funding towards international development plans and initial land purchases. Development Finance usually comes in many different guises, which undoubtedly fuels the confusion surrounding this method of financial assistance. For example, a Senior Debt Loan usually covers the first 70% – 80% of loan to value although it can be arranged against gross development value. A Mezzanine Loan is a second charge loan on top of the senior debt loan, usually used to fund costs on one property while a developers financial resources are tied up elsewhere. Finally, Joint Venture 100% Finance contracts you with an experienced partner who underwrites the project and shares the profits upon completion.
Property development is about having a vision; it’s about understanding the market and turning that vision into a reality. However, developers often have problems getting the finance right and knowing what products are available and which lenders to use can be confusing. The forms of development finance are dependent upon personal circumstance, for example whether you are a company wishing to expand, a home owner hoping to develop, or a home owner looking to start anew. Community projects also use this form of finance in supporting people and businesses in disadvantaged communities, both in the UK and worldwide. Therefore, Development Finance is determined entirely upon an individual assessment made by the lender. All aspects of the development proposal have to be faultless in the eyes of the lender before they agree to provide funding. Lenders look meticulously at development characteristics such as land purchase, ground work, labour and services, first and second fix and then sign off. In the difficult current market, lenders have to be more careful when choosing which developers to back; they are much more likely to support a developer with experience in the field than someone new to the industry.
Development Finance lenders are there to build a relationship with the developer in order to share their vision and provide the support needed to make that vision a reality. The loan can cover costs such as building costs, labour and can often include any architect costs and other professional fee’s such as wages and drawings. Property development loans will be secured against the land or the property you wish to develop. Traditional forms usually require a 20%-30% deposit, whereas more recent forms are now available for debt, to release equity or mezzanines.
Loan to Value rates and interest rates vary depending upon experience and percentage of funds required for development. Benefits of this form of finance includes that each development case is assessed on its own merit and it’s a form of finance that can be raised quickly, putting your development project into fruition as soon as possible. Furthermore, the development lender will be on hand to support the client with advice on their development throughout the process and the same person, who authorises the funds, will work with the client to manage throughout the Development Programme. No matter what you decide to do with your completed project, whether you plan to sell in order to start the next project or whether you retain the project for investment purposes, Development Finance is a flexible solution to suit your financial needs.