Getting to understand Development Finance better

October 07, 2019

Although the name seems intimidating at first, development finance is pretty much how it sounds.

It is the process of gaining investment for development or refurbishment of residential, commercial or mixed-use properties.

Demand for this has vastly increased over the last few years since developers realised the potential for huge returns in property.

Development finance is usually granted to experienced builders and developers, it also helps if they have earned a good reputation within the industry. These funds mean that they can start raising the capital to turn their ideas into reality.

Unlike a traditional mortgage lender – who will only consider the current price of a property – a specialist development finance lender will take the future value of the property into consideration when agreeing on a loan.

Applying for development finance is a fairly straightforward process. The individual has to submit an application which includes how much the site/property was bought for, the development/refurbishing costs, professional fees and build timescales.

After, a lender will offer some terms based on the information and supporting evidence provided. Credit searches will then be conducted on the applicant´s finances, experiences and development location.

If approved, development finance could be used to cover the land purchase and building costs. For example, a lender might finance 50% of a property purchase and 70% of the build, meaning the developer and their investors have to fund a significantly smaller portion of the entire project.

The project will then be checked on throughout the construction.

Bad credit is one thing that will get in the way of a person´s development finance eligibility. That, and poor organisation skills. The latter is due to a large amount of paperwork that is required to support an application.

This is because a lender has to take into account the future value and saleability of a project once it is completed and the short-term loan is repaid. Examples of paperwork that will be asked for is:

  • The current value of a property if owned or purchase price
  • Predicted end value
  • Your build or renovation costs
  • The timescale for the development
  • CV of experience
  • Details of professionals involved with your project
  • Copy of planning permission
  • Building regulations
  • Details of any Section 106s or any planning restriction if applicable

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