Property Development finance

Depending on the project, there are many types of development finance available. They’re suitable for:

• Commercial or Semi Commercial property development
• Residential property development
• New build developments
• Single unit to large multi-unit schemes
• Sales Period Funding
• Renovations and conversions
• Light or heavy refurbishment
• Development exit funding

In some instances, development finance can also be used in the early stages of the project. For example, to finance the land/site purchase and also the build costs.

While it’s no surprise lenders may be more inclined to provide competitive loans to experienced property developers, it’s not always the case. There are a number of alternative lenders in the market who will consider first time developers. However, regardless of your experience, here are two top tips that we think are well received by lenders:

• Ensure you have done the maths correctly and the project is viable with evidence to justify.
• If possible, instruct a project monitor or professional team to oversee the development project to make certain works run smoothly.

Contact our team of property development brokers if you’re unsure about whether you would qualify for development finance. Our specialist team are on hand to talk through your project and may be able to suggest alternative finance if required.

Property development finance terms are the pre-agreed length of time the loan is secured for. The term of the loan is determined by the time to build and exit the finance. Typically, the term is up to 24 months but for larger, more complex projects, 36 months may be appropriate.

For the loans themselves, they are often arranged on a monthly interest only basis which is paid in full at the end of the term. Sometimes the lender will require the loan to be serviced upon execution of the exit strategy, however this is less common.

Typical interest rates for property development finance are very broad. The overall stack of finance can vary significantly and is determined by the project itself, namely the size and type.

However, in order to achieve the most suitable rate for your project it’s important to discuss your options with a member of our specialist development team. As experienced advisers in property development finance, our team are on hand to suggest which lenders may present you with the most relevant terms.

Senior finance

• 1^st charge security
• Interest rates are dependent upon several factors, but typically range from 3-7% per annum
• Arrangement fees and exit fees are between 1-3% in total.

Junior (or mezzanine) finance

• 2^nd charge security
• Interest rates are dependent upon a number of different factors, though typical rates vary between 7-20% per annum.
• Similar to senior finance, arrangement exit fees are between 1-3% in total

Equity finance

• The security varies on the structure, but normally equity finance sits behind all other lenders
• Typically, the finance available ranges between 30-50% of the profit of the structure
• The returns offered vary