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Property Development Finance is suitable for lots of different projects. The smallest loans generally begin at about £50,000 and have no largest amount.
The cost of developing property can involve hundreds of millions, and depending on the borrower’s strength lenders will gladly lend money in such quantitates.
These loans are designed for use in the short-term, and repayment is expected once the project is completed, from the funds raised through selling the property or refinancing.
The longest term for these loans is usually 48 months, and at standard lenders offer loans at a maximum of 18-24 months. Very few lenders will accept loans for a longer period.
Loan companies consider several factors to calculate what the maximum available loan is. Whilst traditional mortgages are based on loan to value, development finance is based also on alternative calculations.
To take an example. The project involves 4 houses which each sell for £300,000. The overarching cost of the project including land and construction is £800,000. The Gross Development Value can be worked out as follows:
Predicted GDV are best calculated in comparison to contemporary property sales in the same area.
Calculations can be made based on capital and rental value. Gross Development Value is the basis for any monetary support.
1. Development Appraisals & Calculating A Budget
Development appraisals are a necessity and help make a decision towards whether or not a property development will be profitable or not. These types of assessments differ greatly but should involve calculating the GDV and budgets.
2. Land Acquisition
How profitable a project is largely dependent on gaining the right land for development. Land acquisition is a sizeable proportion of the project’s final spend.
Within the UK, there are three kinds of land sites:
Developers should note that planning authorities consider things like the community impact of the proposed build before making a decision. Strategic decisions can be made to gain approval.
Getting enough money to fund your project can be difficult. Securing the right loan is key.
Developers are advised to create three separate exit strategies; optimum, normal and ‘haircut’. Presenting a strong portfolio of previous work to lenders is the best way to get them to agree to fun your project.
4. Pre-Commencement Stage
Developers should consider who is likely to buy the property once they have finished development. This includes considering government schemes and the target market for particular property types.
Development Finance Interest Rates can be as little as 4% per annum, which works out at about 0.34% per month.
The better the rate, the more difficult the deal is to get. To get the very best plan you will be required to fit particular criteria. You will need to:
For The Best Rates And GDV Loans Contact Property Finance Partners On 020 3393 9277
Interest rates vary wildly between different lenders, however, there are additional factors which influence interest rates. Including:
Average plans begin at an interest rate of 4.5% and 5% per annum. On development finance, interest is requested as either a monthly or yearly rate.
To make sure you fully understand the rate, you should change the charges in a single rounded unit.
The easiest way to make this calculation is by dividing the yearly rate by 12 to establish the monthly rate or multiplying the monthly charge by 12.
1. Lender Arrangement Fees or Facility Fees
Lenders will incur a charge known as development finance arrangement fees for organising the loan and they are usually between 1% and 2% of the gross loan amount.
Generally, arrangement fees are attached to the loan facility, so borrowers can pay it when they repay the loan. Interest will also be imposed on this fee as it is part of the loan arrangement.
2. Exit Fees
An exit fee is a common component of development finance loan arrangements and will usually be around a 1% charge.
The fee is typically based on either the net loan amount or gross loan amount of the arrangement, or alternatively the project’s gross development value.
As well as establishing what the fees involve, it is pertinent to recognise how the fees are calculated.
The way the fee is calculated can alter the overall cost significantly.
For example: If you the borrower, had an arrangement for £600,000 (net) that involved a 2% facility fee and 1% exit fee, across a couple of years, to finish a project with a GDV of £1 million, the exit fee will differ largely depending on what it is calculated against:
Exit fees are not taken until the arrangement has finished and the loan is redeemed and therefore do not involve interest charges.
3. Administration charges
Some lenders will expect you to pay administration fees, which can up to £1,000. These payments are taken after terms have been given and are accepted.
4. Broker Fees
Oftentimes, brokers will charge so-called brokers fees, as payment for finding a suitable lender. They come in two forms:
5. Upfront fees, alternatively called an engagement or commitment fee
Generally, these fees are not repayable and are used to secure interest in a broker’s resources.
6. Success Fee
This fee is expected when you receive an acceptable offer for a loan. In general, success fees are attached to the loan arrangement and taken off during drawdown. Brokers will delay until they receive this payment.
7. Valuation Fees
These fees can be particularly costly for developers. A surveyor will be instructed to make a valuation of the site for development in its current condition in great detail.
They will also be asked to make a judgement of how much it will cost to develop, the length of the build and probable cost of the completed project.
8. Solicitor Fees
Development lenders will expect you to pay both your own personal fees and any legal costs they encounter.
Legal fees can differ largely as do applications and the cost is dependent on factors such as the development’s location, the intricacies of the work involved and size of the site.
This is a type of professional fee, the loan cost may also include fees for architects and quantity surveyor.
9. Monitoring Fees
Lenders will often request surveyors to observe the progress of the project, throughout development, especially for large projects.
The surveyor must find the build satisfactory so that more money is awarded for the costs of the build.
Such visits are priced by the lender as monitoring fees and their cost will depend on both the lender and project.