100% property development finance enables developers to access property development loans, without using their own money. Development finance can be used to cover 100% of the site purchase and build costs, making it a popular option for many developers.
If you are looking to purchase a property which you will be using as business premises or renting out as part of a property portfolio, a commercial mortgage may be more suitable. The main difference between development finance and a commercial mortgage is that the property is not sold to repay the loan, instead monthly repayments are made for the duration of the mortgage term. This can be anywhere up to 30 years, so is usually used by developers looking to add properties to their portfolio.
If you are looking for a 100% commercial mortgage, it is likely that the lender will require you to provide security to act as collateral. If you are unable to provide security, the maximum loan to value offered is usually 75%. Traditionally, commercial mortgage lenders will consider the value of an existing property when lending, whereas those offering 100% of development finance will consider the value of the development upon completion.
There are a variety of development finance options available, including commercial mortgages, business loans for developers and joint venture finance. The type of finance required will depend on factors such as the type of development project, the length of the project and the cash the developer has available to invest.
Joint venture (JV) development finance is another term used to describe 100% property development finance. The lender provides a 100% property development loan which covers the full development costs. In almost every situation, this form of development finance is used to cover multi-unit sites rather than single-unit builds. Once the site is finished the profits from the sale of the site are usually shared between the property develop and the lender.
This form of development finance is a popular option for many developers, as the lender provides 100% of the funds so you own cash is not tied up in a single project. Instead, you will be able to avail of opportunities and potentially complement many projects at the same time.
In most situations these the development finance provider will receive 50% of the profits, although some the terms and costs do vary between providers. For example, some will charge interest and then give you a slightly higher profit, while others charge no interest in exchange for a larger share of the site profits.
When you borrow through JV finance, the ownership of the development site will be placed in a special purpose vehicle. This can seem confusing to some, however it is simply a limited company which it opened to own the asset. The site is the asset and ownership will usually be transferred to the finance provider, although it will be guaranteed in the developers favour.
There may be some cases where development finance and commercial mortgages are not the best option for your development. For example, bridging loans and commercial loans are types of business loans which can be used for property projects.
A bridging loan is very similar to traditional development finance, with the main difference being that bridging loans do not offer staged payments. There are some developers which avail of a bridging loan to purchase a site which does not have planning permission, especially if this could be difficult to obtain. Once permission is granted they will then be eligible to apply for development finance.
If the project is a small scale, a bridging loan may provide part of the capital required to complete any development works. However, if it is a large scale development or ground up construction. development finance may be more suitable.
Although uncommon, there are some scenarios where a commercial loan can provide an alternative form of development funding. If a developer has the capital required to complete construction, however needs a loan to purchase the site itself, a business loan could be an option. A loan could provide the extra capital required to get a development project off the ground, without the need for a personal guarantee.
Before applying for finance for a development you need to consider which of the available options will be best fit for your situation. In most cases development finance which covers 100% of the costs will only be available to those with considerable experience and a great track record. Although those with no experience will be considered, the application would need to show a strong gross development value to be considered.
If you are applying for 100% property finance, lenders will be looking to approve projects which will provide a strong return on their investment. This means that many lenders will only consider a site with a gross development value of more than £1 million, providing a margin of at least 30%.
In addition to development experience, lenders will also require you to provide additional security. The personal guarantee will usually be capped, although different lenders will have different levels of additional security required. It may be possible to reduce the profit share if you are able to provide additional security, usually in the form of other properties or land for potential developments.
Before your finance application can be processed you will need to receive outline planning permission, as the lender will not provide 100% of the finance if there are risks involved relating to planning issues.
Here at BusinessComparison we have partnered with a range of finance providers, which specialise in providing development finance to property developers. As a broker we can help compare the options available, so you find the best deal on your property finance.
We have access to a range of more than 30 traditional and alternative lenders, which means we are ideally positioned to find the best terms for your circumstances. Whether you are looking for a small bridging loan or finance for a multi-unit development. we can help.
Our lenders understand that you are looking for a quick decision, so many lenders will offer a decision within just 48 hours. To apply simply complete our quick online form with details such as how much you need to borrow, the cost of the development, the total development value and what the loan will be used for. This information will then be used to match you to the lenders which provide solutions to meet your requirements, so you can easily compare options to find the ideal lender.
Your chosen lender will require a full document pack, including details of the sites planning permission, similar property sales and details of your target market. This information will be used by the lenders to determine whether you are eligible for finance. If you are looking to speed up your application, it is advisable to have this information to hand.
If your application is approved funds can often be released quickly, so you can get started on your development and make the most of the opportunities available to you.
To find out more about our development finance property options, please call us today.