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Low Rates of Development Finance in UK

Property Development finance is used by real estate developers to fund a variety of building projects, conversion projects or renovations of real estate. It is secured by a first legal charge against the project.

A development finance lender will usually lend against the value of the land plus (most or all) the build costs. The central figure that the lender would like to know is the Gross Development Value (The value of the finished project) also known as GDV. The funds are released in stages (monthly or quarterly) following the project progress.

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Almost all types of property developments can be classified under the finance for property development umbrella; it includes the new build of residential projects, commercial projects, Mixed used, hotels, offices, industrial parks, care homes and care villages, holiday homes, houses, flats and more. It also includes all types of refurbishments, conversions, PRS and PD rights.

The financing is determined on the gross development value. More specifically, what matters is the worth of the site after the refurbishment or building project is over. Hence, property developers and real estate developers oftentimes choose this type of financing in order to cover the costs associated with such projects.

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How Does Property Development Finance Work

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A property development loan is usually for a short-term period. It’s usually between 12-36 months.
The lenders supervise on the project with (usually) a QS report on the project progress. The development loan is repaid to the lender at the end of the project. Either by selling out or refinancing with an investment facility.

The developer finances the land purchase price. Concurrently, the lender supplies either all or part of the remaining construction costs. It’s also worth noting that the money is usually released in stages, depending on the progress of the project. Afterwards, the lender makes staged payments according to the pre-agreed intervals. In this way, all the costs associated with the project per se are covered.

The lenders calculate a development finance facility as a percentage of the gross development value of the finished project (the GDV) as well as, as a share of the costs, the lower between them.

Usually, a monitoring surveyor should indicate that the scheduled works proceed according to a plan. There are also certain standards worth considering.

When it comes to the standard terms for finance property development, they can vary. That’s basically because each scenario has its own specifications. Plus, different development finance lenders provide different offers. However, the duration of the loan might be between six and twenty-four months.

Plus, property development finance is interest-only, as the interest is cumulated into the loan.

That is to say, during the term of the loan, you don’t have to worry about making scheduled repayments. When it comes to exiting the loan, there is the option of selling the property.

Many developers worry about the interest of this type of financing. The truth is that so many factors affect this. For one thing, certain development finance lenders are more flexible in this respect. Others might be more rigid – it varies quite a lot. Also, the financial contribution of the developer to the project matters. The same could be said about his/her former experience in the world of development.

It’s as simple as this: the more an investor can contribute to the project, and the more experience one has in the domain, the more convenient the interest rate will be. Collaborating with professionals who have excellent credentials is a sensible strategy as well.

calculating property development finance for projects

Who Would Benefit 

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The people that usually choose this form of financing, this could be a viable choice for builders and developers by profession. So, if one intends to build a home from scratch and sell it afterwards, this form of financing might facilitate the needed financial resources for completing the project. And of course, there is the most typical scenario – that of an experienced developer who needs money to build homes or apartments in order to resell it and secure an excellent rate of return.

Usually, the maximum sum of money you can borrow will depend on the lender you’re collaborating with. Most of the times, this is up to 60 percent of the purchase price, although here at Property Finance Partners we can go as much as 85%. At the same time, the type of project also matters. The lender is mostly concerned about the Gross Development Value of the finished project – also referred to as GDV. After the financing application is approved, the money is released monthly or quarterly as the project advances.

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How to Raise Finance for Property Development

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In comparison with traditional property investment, development finance in the UK comes with significant financial rewards and, most notably, flexibility. It is a type of financing that is short-term, as its duration can range from 12 to 36 months. Concurrently, it entails that the lender takes on the responsibility of supervising the project. At the end of the conversion or refurbishing project, the loan is repaid.

In respect to the rates of development loans, these will vary depending on the experience level of the applicant, the region and the project.

Raising Development Finance

When raising finance for property development, it is advisable to take things one step at a time. Although starting small might not seem like the right approach to generate significant returns, it might actually be a good idea, especially in the beginning. That’s because this diminishes the risk. On the other hand, this might seem restricting, which is why another option worth noting might be collaborating with a private investor.

For experienced developers there are are many options to raise the development finance required, structuring the right finance for your project is key to saving you time and money. Property Finance Partners has the knowledge and expertise to get you the right finance at the best deal. Talk to one of our advisors for more information.

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Calculating Development Loan Requirements

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The size of the development loan needed by the sponsor is calculated according to the actual costs of the project. The costs include the purchase of the land with all the expenses like stamp duty, legal and others, build costs together with any other associated costs until the project is finished.

In a development finance facility the funds will be released by stages (monthly or quarterly) following the project progress.

The development finance facility is also used to support most of the PRS schemes
PRS Finance – Private rented sector
PRS- Build to rent expression is employed in the UK when people want to describe the private building to rent out.

The properties are owned by private landlords who can be companies or individuals.
We at property finance partners work closely with real estate funds and alternative lenders and that offer high LTV as well as JV partnership and equity investments in different PRS projects all over the UK.

To find out how we can help you to raise development finance for your PRS project, call today on 020 3393 9277

Reason to choose us for development finance

Development Finance for PD Right Projects

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The development finance facility is also used to fund most of the PD schemes
PD Finance – Permitted development rights
The plan that is called PDR permitted development rights enables to change and convert office buildings to residential units without applying for planning permission in some cases.

We at property finance partners work closely with real estate funds and alternative lenders and that offer high LTV as well as JV partnership and equity investments in different PRS projects all over the UK.

100% Development Finance – Key Information

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100% of property finance -When it comes to the UK marketplace, Property Finance Partners has the ability to raise 100% value of the land to 100 percent of the total cost of the build. Discussing this with our advisors is always recommendable.

One hundred percent development finance usually involves a mixture of debt finance and equity partner, this way a Joint venture collaboration is set between the borrower and the equity lender, with a share of the profits.

When it comes to development finance, although there are many rewards that come with completing a project, there are also some risks.

Many novice property developers have made rash decisions without fully comprehending the potential risks. For one thing, it’s fundamental to be 100 percent straight when discussing with a lender. Instead of trying to make an application more appealing to the lender to increase the chance of success, being upfront and straightforward is the best policy.

When pursuing 100% development finance, one should have realistic expectations regarding the profit. Factoring in the market conditions in which the project will be finalised is highly recommendable as well. Are there any changes likely to occur after the completion of the project?

The lender and JV partner want to be sure that the property developer has the experience and know how. The feasibility of the project is also an important part of the application process.

You need to be prepared with factual, accurate information including the duration of the project, the results you plan to accomplish, the money needed in this respect, so on and so forth.

As soon as you’ve proven that your project is worth the investment and the time in respect to profit margin and viability, you also need to supply thoughtful, comprehensive plans.

Click here for more information on 100% development finance.

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Case Studies

Case Study Development of Holiday Apartments


A developer is looking for a development finance facility to build a project of eight-holiday apartments. (Most of the lenders don’t like to lend for development of holiday homes)

Property finance partners finance solution
The owners approached us and we restructured for them the whole deal including the land purchase timing.

Summary
This projects gross development value or (GDV) is £ 3,350,000 Total (purchase and development) project costs are £ 1,675,000 The finance facility offer £ 1,300,000 the developers’ contribution to the deal £ 375,000

Case Study PD Rights Development

A developer has bought an option for building with PD Rights (to convert offices to flats). The time period of the project 20 months to convert and 4 more months to complete the sales.

The developer has made his financial calculations and appraisals and decided to find a JV Partner that can support him without any pressure and provide him with all the finance that he needs for the project.

Property finance partners solution
We have approached a real estate fund which shares the same strategy and can support the developer with the funding needed without any pressure.

Summary
The projects gross development value (GDV) is £ 38,200,000 Total (purchase and development) project costs are £ 28,500,000 The developers’ contribution to the deal (except drawings, option purchase and pre-deal expenses) £ 0 The JV partner (a Real Estate investment Group-structure of 2 funds) £ 28,500,000
The developer can realize this project by using a joint venture agreement with the fund.

Case Study of Development Finance without Planning

A developer has bought land, without planning and achieved the planning (subject to S 106) to build a residential project.

The developer is interesting to build 50% for sale and the rest 50% build to rent, keeping 50% of the portfolio as a PRS (Private rented sector) project. The time period of the project was 24 months to build and 12 months to stabilize to project sales and rentals.

Property finance partners solution
The developer has arrived at property finance partners and we have structured the financial appraisals and decided together to find one lender that can support him in both of the phases of the project or two different lenders.

Summary
The projects gross development value (GDV) is £ 59,000,000 Land Value £ 16,800,000 Total (purchase and development) project costs are £ 43,500,000

The Lender development finance loan (a Real Estate finance institution) £ 26,700,000
The developer can realize this project by using a development finance facility in stages according to the project progress.

Case Study: Further Growth for a Landlord

A landlord that is also a developer approached us to assist and structure his finance and raise finance for growth. We analyzed his current portfolio, the value, the debt, the annual yields, the locations and the whole financial situation of him and of his companies.

The average annual yield from his personal portfolio 5.3%. The average annual yield from his company’s’ portfolio 7.9% Total value of his portfolio £ 37,000,000

Property finance partners solution
Based on our knowledge and working relationship with different funds. We have built for him a roadmap, how to continue to grow by using his existing portfolio. As well as, finding “the right” new potential developments (with our guides and advisory) that will fit exactly the financial institutions lending requirements and criteria.

Summary
The Landlord will grow his portfolio with our structures of financial debt as an equity loan in addition to a pure development facility.

To find out how we can help you to raise finance for your PD project, call today on 020 3393 9277

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