What is Property Development Finance?
Property development finance is a flexible loan designed to fund the purchase of land and cover construction costs for various projects, such as residential developments, commercial properties, and new builds. Whether you’re starting a new venture or need additional funding for an ongoing project, development finance can provide the financial support you need to bring your vision to life.
How Does Development Finance Work?
Lenders assess the Gross Development Value (GDV)—the estimated value of the property once it’s complete. Based on this, you can typically borrow 60-70% of the GDV, and in some cases, up to 100% of the build costs. Funds are released in stages as your project progresses, ensuring consistent cash flow throughout the development.
Key Requirements for Development Finance
Lenders typically look at several factors to assess your eligibility, including:
- Exit Strategy: A clear plan to repay the loan, usually through property sale or refinancing.
- Credit History: While a perfect credit score isn’t always necessary, a clean credit history can strengthen your application.
- Experience: Property development experience is beneficial but not always required. First-time developers can still qualify.
- Deposit or Security: Most lenders require a 70-75% Loan-to-Value (LTV) ratio for the purchase, with the remaining amount covered by a deposit or additional security.
Pros and Cons of Development Finance
Advantages:
- Quick Access to Funds: Fast approval and staged funding keep your project moving smoothly.
- Larger Projects: Development finance allows you to take on bigger projects than you could with personal capital alone.
- Multiple Projects: By reducing the amount of upfront capital required, you can manage several developments simultaneously.
Challenges:
- Higher Interest Rates: Development finance often comes with higher interest rates than standard mortgages, making it more expensive in the short term.
- Complexity: With numerous options available, comparing rates, fees, and lender terms can be challenging. Plus, lenders typically require detailed documentation to evaluate the project's risk.
Development finance is an excellent option for property developers looking to scale their projects or manage multiple developments at once. However, it’s essential to carefully assess the costs and requirements before committing.
Brooklyns Specialist Finance, our sister company, offers access to a vast array of bridging, commercial, and development finance options. Take advantage of the opportunity to compare loans from over 120+ lenders in just a few seconds
Development Finance services are referred to a third party. Neither Brooklyns Financial Ltd or PRIMIS are responsible for the service received. These services are not regulated by the Financial Conduct Authority and may have limited consumer protection.
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