Raising finance for a property development can be tricky, but our experienced team at The Residential Mortgage Hub can help you overcome these difficulties and help arrange finance for all kinds of clients and circumstances.
Development finance help
There are a few things to understand before we get started.
Property development finance is a type of short-term loan used for the purpose of funding a residential, commercial or mix-use property development. It’s a fairly broad category that covers term loans, mortgages, bridging loans and even personal loans.
Development finance works by the lender providing money to purchase the property and the money to complete the building work.
Most development finance lenders will offer an initial loan based on the purchase price. The lender will subsequently fund 100% of the cost of works. This ensures that the works are completed, and the development is finished and ready to be sold or refinanced.
Keep reading to find information on the process and for answers to some of your main FAQ’s.
You can also learn about the different types of mortgages and interest rates in our guide.
Development finance: Frequently Asked Questions
The paperwork required for development finance is considerably more than a normal residential mortgage. Lenders will carry out a lot of due diligence on the borrower, the site and the contractors carrying out the work.
Typically, lenders will require the following supporting documents:
- Application Form
- CV’s detailing development experience of the applicant
- Asset & liability / income & expenditure statement
- Annual accounts/tax returns – if the borrower is a going concern
- Valuations and QS reports
- Summary of proposed scheme including location, current and proposed site use
- Development appraisal including detailed costings and proposed specification/finish
- Project timeline/cash-flow forecast (allowing for prelims, construction and realistic sales window)
- Copy of planning consent and plans including accommodation schedule
- Comparables for sale and rent from a local agent
- Proposed team including contractor, QS, architect etc – To include CV’s and financial accounts for these where appropriate, demonstrating ability to deliver the project.
Additional documents maybe required on a case-by-case basis.
No. We can help you purchase the land, as well as provide finance for the build.
Yes, between 12-18 months for residential building projects. Longer terms than 18 months become commercial mortgages, which is a separate product.
No. Typically you will need to fund at least 30% to 40% of the development costs yourself
In most case the land must have planning. However, there are some lenders that will lend to experienced property developers on land that does not yet have planning.
Yes. Lenders will favour people with experience, but that doesn’t mean we can’t help if this is your first time.
A good place to start would be to purchase a property that needs light refurbishment before moving on to the next project. Each subsequent project can increase the amount of works required. This is how many of the developers now building new build houses first started out.
How much money you need to be a property developer depends on the property value and cost of works. Typically, lenders will lend up to 70% of the property value and 100% of the works for light and heavy refurbishments. For experienced developers developing several new units we can fund up to 90% of total costs including professional fees.
Using a broker to get development finance will ensure you get the best possible development finance terms. A good broker will complete a comprehensive development finance proposal that contains all the information a lender needs to be able to decide to lend.
We provide developers with lots of advice throughout the process but here are some of the best development finance tips.
- Get your paperwork in order, planning, CV of previous developments, assets and liabilities statement, build costs and timescales. A well-presented development finance proposal receives a better reception from the lenders.
- Interest will be rolled up and deducted from total advance, as will the lenders fees, make sure you know the NET amount you need to borrow to allow you to purchase and build out.
- Mortgages for property developers take time to be underwritten due to the extra information. Get your funding agreed as soon as possible into the process. We can provide development finance appraisals for prospective development sites.
- Always factor in contingency funding of 5% to 10%. With increasing build costs due to shortage of labour and cost of materials contingency funding is essential.
- Know your exit. With a softening market you may not sell all your units before the development funding expires. Development exit finance allows you to secure cheaper funding and extends the sales period. Don’t put yourself under pressure to sell at discounted prices.
