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Property Development Finance Explained Development Finance Property Development Uncategorized

Property Development Finance is a short-term loan for residential and commercial property developments. These development projects can be viewed as construction projects or any other projects which are meant to bring the property to a usable state.

Moreover, this financing option can also be used for costs like land purchase, or any other subsequent development costs that require converting properties to flats or HMO’s. Therefore, this phenomenon can be best described as large-scale funding for projects of a considerable size, that might include projects, or building renovation works.

Regeneration initiatives, residential housing projects, or any other expansive office block constructions can be used for this particular purpose. However, it must be duly noted that Property Development Finance is not used for smaller property developments, which might include home renovations or property improvements of a relatively more minor nature.

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For more information on Development Finance and if you require the best rates contact property finance partners. Call 020 33939277 or email [email protected]

Under What Circumstances Is Property Development Finance Available?

The scale & scope of a particular project directly impacts the type of finance options that are available for a specific project. As far as large scale projects are concerned, ground-up development finance is probably the correct way to approach things. This comes under the domain for activities like purchase of land and funds that are required for construction.


Another important factor that needs to be noted in this regard is the fact that Property Development finance amounts to around 70-80% of the overall cost incurred for building or constructing the relevant project. On the contrary, this means that the responsibility of funding to be found by the developer, for the more significant part.


Another additional aspect that needs to be incorporated into this is the fact that in the case where a more comprehensive portfolio of properties is owned.

Property Development Finance Explained Development Finance Property Development Uncategorized

How to Apply For Property Development Finance

Getting approvals for Property Development Finance can be a daunting task for many people. In order to apply for Property Development Finance, it is often a good idea to ensure that all plans and projections have been taken care of, in terms of straightening out all the potential barriers that might otherwise exist.


In this case, it should further be noted that lenders mostly base property finance loans on the overall feasibility that is drafted relating to a specific project. Therefore, it gets rudimentary for borrowers to project promising results, mirrored by the probability of higher income and profit.

Furthermore, having experience in the property development field is always handy, predominantly because of the reason that it acts as a plus if there is a prior experience that can reduce the overall risk of default, or the project not being implemented in a proper manner.

Property Development Finance can be seen as an increasingly important scheme which helps property dealers to avail finances to facilitate development-related work on their property. In this regard, it can be seen that there are a couple of options to choose from, which have their own benefits and pitfalls contingent on different situations. These include commercial mortgages, buy-to-let mortgages, and auctions.

For more information on how to obtain property development finance click here

For more information on Development Finance and if you require the best rates contact property finance partners. Call 020 33939277 or email [email protected]

How much does property development finance cost?

The interest cost on property development finance varies from lender to lender. The variable rate can be anywhere from 5% per annum to 16.2% per annum. The reason behind this volatility vests on the grounds of the overall perceived risk of the application. In order to hedge risks, the lenders mostly consider property location in order to be sure of the inherent costs involved, in addition to clients’ experiences in similar projects, as well as loan size and overall loan to GDV.


Furthermore, it must additionally be noted that interest is not the only inherent cost that needs to be considered. There are a number of other expenses that need to be inculcated in this regard, which might be loan servicing fee, which amounts to around 1-2% of the total facility amount. Some lenders also require an additional redemption fee when the loan is redeemed, which is also 1-2% of either the loan amount or the gross development value.

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Property Development Finance Explained Development Finance Property Development Uncategorized

Amount that can be borrowed via the Property Development Fund

The amount that can be borrowed for this particular cause is mostly contingent on the value of the security on day one, as well as the gross development value.


The loan is mostly serviced throughout the build, and is, in most cases, released at regular intervals. The stage released payments are mostly subcategorized via monthly releases, or against the benchmarks that are set on the build. This is something that is mutually decided between the borrower and the lender. When initial withdrawals are carried out from the loan itself, it can be seen that lenders are mostly happy to lend around 65 to 70% of the purchase price, or the value that is calculated at day one. Additionally, lenders are also likely to release the full build costs, which are mainly subject to an overall loan to GDV. This is the ratio of the loan vs the final scheme value.


Another essential protocol in this particular transaction is ensuring that the released payments are managed correctly, and the project is being executed as per initial plans. To ensure this process runs as it should a monitoring surveyor is appointed. Their specific job description is to check the progress of the build, in addition to the quality of the work being done on-site, as well as the ongoing value of the site. This helps the lenders to have proper clarity about the project, and the overall performance tracking of their investment.


In most cases, it is possible to borrow an amount of roughly equaling 70% of the gross development value as an entire facility. However, the cheapest products are usually capped at 55 or 60% of the gross development value.

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Advantages of Property Development Loans

Over the course of time, the popularity of property development loans has increased exponentially. This is primarily owing to the fact that there are convenient for property developers, and are an exciting, attractive investment for the lenders. This is because property development lenders are able to make huge profits out of these deals, and this helps them to get better ROIs as compared to other financial products in the market. Additionally, this also helps them open up the possibility of larger investment pools in the future.


The benefits of Property Development Loans from the perspective of investors are also substantial, because of the reason that it creates a linkage between firms and investors, who are adamant on supporting a project if a senior debt is required. The firms that are responsible for facilitating these transactions can also establish partnerships with developers, which can increase their circle, and prove to be emphatic for the property market, on a holistic scale.

Property Development Finance Explained Development Finance Property Development Uncategorized

Drawbacks of Property Development Loans

However, despite the positives of Property Development Loans, it can be seen that there are a number of disadvantages which need to be considered in this regard.

Firstly, it can be seen that from the borrowers’ perspective, he has to be answerable to the lender across the course of the project. This means that he has little flexibility over tweaking anything during the course of the project itself. Additionally, it can also be seen that in order to release payments for the next phase of the project, site visits and subsequent paperwork needs to be finalised which acts like a red tape towards the overall process.

The information required by the lenders is often quite a lot, and it might be hard for the borrowers to arrange all that information in a quick span of time. Lastly, the overall interest rate that is paid to the lender is often an added cost that the borrower has to bear.

Property Development Finance Explained Development Finance Property Development Uncategorized

Conclusion

Therefore, to summarise and conclude the information mentioned above, it can be seen that Property Development Loans are short term loans that are obtained for the purposes of ensuring that development work on the property can be carried out, at an additional cost.

The extra cost is mostly the sum of interest fee, servicing fee and the redemption fee, which has to be borne by the borrower. The loan is short-term and needs to be repaid, along with accumulated interest at the end of the term.

The leverage that is offered to the lenders is the fact that the payout is higher as compared to other financial instruments, whereas the borrower gets the leverage to complete the project without having to worry about any liquidity crunches.

For more information on development finance and other finance options click here

For more information on Development Finance and if you require the best rates contact property finance partners. Call 020 33939277 or email [email protected]

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