What is development finance?
Property development can be a fun and exciting challenge, with lots of decisions to be made, the results can be incredibly satisfying. Developing a property has a lot of potential in terms of boosting your income, whether it’s through the proceeds of sale or regular rental income as a commercial enterprise. If you are intending to develop a property, it’s likely that you’ll need property development finance for your project.
Property development finance is a type of commercial finance which allows property developers to construct, convert or refurbish a property by offering a short-term loan. The loan can cover a high amount of the purchase price plus all associated costs for construction, and managing the project until it’s complete. Conversely, if you’re a business owner looking to buy a new property, you may simply require a commercial mortgage, and in either scenario, our experienced experts are on hand to help.
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Why opt for a development finance loan?
Developers primarily choose development finance for two types of project:
- To convert an existing property – e.g. a barn conversion, commercial premises into residential (factory into flats), commercial into mixed usage (flats & shops), HMO etc.
- New build developments – e.g. New houses/flats, new commercial property, serviced accommodation, holiday lets etc.
Whatever the chosen project, development finance is a great option for developers because of its flexibility, and suitability. It provides quicker access to funding (normally within 6 weeks), is customised to the unique requirements of your project, can be used to both buy the property and carry out the renovations required, and mitigates risk by providing a buffer which can cover unexpected costs or delays during the construction or conversion process.
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How to access development finance
In order to secure development finance for your next project, you’ll need to take a number of steps.
First, you’ll need a proposal which clearly defines your project’s goals, timelines and budget. This will need to include your business plan consisting of cost estimates, market analysis, and profit projections along with any other necessary documentation such as architectural plans, planning permission, and financial statements. The documents are commonly known as a ‘time & cost schedule’ and ‘building plans’. Architects, builders, and project managers can help you with this, so you’ll need them in your power team. We’ve walked this path many times, so reach out to us if you are stuck.
Finding the right lender is the next step and our team is here to help with this. We have access to a wide network of lenders, and we can help you find the most suitable option for your development project. The most important thing is to get the right lender for the job, which is not necessarily the one who offers the cheapest terms.
Once your loan application is approved, funds are typically released in stages as the project progresses. There will typically be two phases, the first is when funds are released for the purchase of the property which will be up to 75% of the loan to value. The next stage sees the release of the funds for the development work or renovations to take place. These will be released in tranches in line with your schedule of works so you have the funds when you need them. The completed works will usually be checked by either the lender (in the form of invoices, photo’s etc) or by a quantity surveyor who will physically inspect the property, before further funds are released.
Development finance is normally taken on an interest only basis to allow for greater cashflow. There are several options for servicing the loan including deducting the interest and any charges upfront so you’ll receive a smaller ‘net’ loan (deducted), adding the interest and charges at the end (rolled up) or paying the interest monthly (serviced [although this is less common]).
At the end of the term, the principal balance will need to be repaid. This will usually be settled either from the sale of the property, from your own resources or through refinancing either with a commercial mortgage, semi-commercial mortgage, buy to let or residential mortgage depending on the nature of the project. It’s important that you repay the finance on time as penalties can be severe if you exceed the mortgage term. It’s sometimes worth taking out a longer term than you might need to give you extra time in case of unexpected delays. Our expert team has a lot of experience with this kind of finance so can advise you on what length term your finance should take.
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Key benefits of taking out a development finance loan
There are several benefits to choosing development finance for your next project:
- You can borrow against the end value, known as the gross development value (GDV), rather than the value at purchase
- Interest rates tailored to the short-term nature of the loan, ensuring affordability during the development phase.
- Flexible repayment options, with serviced, rolled up or deducted options
- Access to expert advice and guidance from our team throughout the project’s lifecycle.
- Potential for increased profits and accelerated growth by undertaking more ambitious development projects.
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Why choose Simple Fast Mortgage to help you secure a development finance loan?
When it comes to securing development finance, partnering with Simple Fast Mortgage offers many advantages:
We work with a wide network of lenders who specialise in development finance. This allows us to access a range of loan options through lenders who are familiar with the type of property you are developing and your plans for the property.
Specialist development finance expertise
Our experienced mortgage advisors possess in-depth knowledge of the development finance market. We stay up-to-date with the latest trends, regulations, and lending criteria, enabling us to provide expert advice and guidance throughout the loan application process.
We provide tailored development finance solutions
We understand that every development project is unique. Our mortgage advisors work closely with you to understand your goals, requirements, and budget. With this information, we find finance solutions that align perfectly with the nature of your project. If your circumstances warrant a different kind of approach, we also provide bridging finance.
Benefit from a streamlined process
At Simple Fast Mortgage, we value your time and strive to provide a streamlined and efficient loan application process. Our team can help you put together your schedule of works, liaise directly with lenders on your behalf, and keep you informed every step of the way. This saves you valuable time and effort, allowing you to focus on your development project.