how to finance property development
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You might be looking at property financing options if you wish to undertake a large-scale property development project or refurbish a buy-to-let home. Don’t worry if commercial property finance in the UK seems complicated to you, even if you’re a seasoned developer: our content will help you understand a few things about how to finance property development options and all you need to know.

What is property development finance?

Facility development finance is a sort of commercial property finance used in the UK to fund the construction of a residential, commercial, or mixed-use property. Term loans, mortgages, bridge loans, and even personal loans fall under this umbrella. It refers to the large-scale financing of major construction or repair projects.

It could be used to fund a new residential dwelling project, a workspace development, or a revitalization project. For ground-up developments, such as the construction of a property from the ground up, development finance is likely the best option.


Commercial property UK development finance options refer to the large-scale financing of large-scale construction projects and/or large-scale refurbishment projects. This could include new residential dwelling developments, office building construction, or larger-scale rehabilitation projects.

It is not appropriate for smaller projects such as home renovations or property improvements. There are different sorts of bridging finance that can be employed in this situation.

Private property development finance UK

Private property finance can assist you if you wish to invest in private residential property but don’t have the necessary finances right now. Property corporations and construction firms, as well as private people and residential property developers, can apply.

Some lenders want a detailed business plan, while others place a greater emphasis on your credit score. When approaching a lender, having a well-planned investment strategy in place will help you receive a good rate, among other things.

First time property development finance options UK

There are a few things to think about if you’re considering commercial property development finance in the UK for the first time. To begin, determine which property development financing solution is best suited for your needs.

A buy-to-let mortgage, for example, is required if you wish to borrow money to purchase a house to rent out.

A bridging loan, on the other hand, may be appropriate if you want to buy a new house but haven’t sold your previous one, or if you want to buy and renovate a property (paying the full loan amount and interest upon the subsequent sale of the property).

Conduct a study on the local market you’re interested in purchasing before committing to a property development project. If you’re thinking about forming a limited company, you should seek professional tax and legal guidance.

Ground-up property development finance options are intended for larger projects and pay for the land as well as a portion of the construction costs. Typically, property development finance accounts for 70–80% of the total construction cost. The remaining funds must be raised by the developer.

A bridge loan may be the most appropriate sort of corporate finance for short-term renovation projects. Bridging loans are intended to be used for a short period of time until the loan can be repaid or a longer-term type of financing can be acquired.

Larger improvements, on the other hand, could be financed with a commercial mortgage or longer-term bridging loans.

The term ‘property finance’ (without the word ‘development’) is a catch-all term that refers to a multitude of property-related financing solutions. Property finance includes bridging loans, development financing, commercial mortgages, and auction financing.

Different types of property development finance UK

Because financing alternatives are tailored to the unique project, deciding which to pursue can be difficult. The following are the various types of property development financing that are available:

#1. Commercial Mortgages

Used to assist you with the purchase of commercial, industrial, and retail properties. If the property isn’t a private residence, a business mortgage can be used to buy it.

The simplest of the funding vehicles to comprehend, they work in much the same way as a traditional private mortgage, but they spread payments out over a number of years to fit your needs.

Example Case Study:

A tiny bakery currently rents its space but has the option to purchase it.

Rather of continuing to pay significant amounts of rent that may be affected by rental hikes, the bakery decides to buy the property and replace the dead money spent in rent with the investment of purchasing a commercial property.

Most firms will find it easier to obtain a commercial mortgage than a start-up, but this isn’t always the case, and the lender must examine the risk levels for each case on its own merits.

#2. Auction Finance

Typically used by property purchasers who are bidding on auctioned properties.

Bids must be within a set length of time in most auctions (up to 28 days). This sort of financing excels at gaining access to significant amounts of money in a short amount of time.

Example Case Study:

A buyer has purchased a home at an auction at a reduced price and must make full payment to the auction house within a few weeks.

They have already raised the minimum deposit on the day of the auction, and they will be able to acquire the property swiftly thanks to auction financing. They may have decided on the amount of funding required in advance or have it handled later.

#3. Bridging Finance

A short-term funding solution that can effectively ‘bridge’ the gap between purchasing a home and obtaining more permanent financing.

These are often short-term, lasting only a few months, but they generate funding extremely quickly. They’re also quite beneficial when buying a house and quickly renovating or developing it (property flipping). They can operate as a bridge loan between the time you buy a property at auction and the time you sell it.

Example Case Study:

An ancient warehouse is by a property developer who plans to renovate or refurbish it. It does not require any substantial structural changes, but it does require some internal renovations.

Bridging finance is the preferred funding option for projects that require only a few months between purchase and revenue generation. Their lender relationship can help them secure financing for both the purchase and renovation of the property.

How to apply for property development finance options

It pays to do your study when applying for property development financing. This entails thoroughly considering all plans and projections, as well as overcoming any potential roadblocks.

Lenders base property finance loans on a project’s feasibility, therefore it’s vital to show that your project has the potential to create revenue and profit.

If you have expertise in property development, you should be able to demonstrate a solid track record; but, if you are new to the sector, you may discover that it limits you from the largest property development projects, and lenders will be wary of you.

However, there are always exceptions, and a knowledge gap can be filled with realistic and well-researched estimates based on factors your lender would comprehend.

Property development finance in practice

There are a variety of financing alternatives available depending on the type of project you wish to undertake. You could wish to consider a refurbishment bridge,’ which covers 3–24 months of construction costs and can occasionally be into a mortgage afterward. This product would be suitable for the majority of light and heavy renovations.

Then there’s ‘development finance,’ which covers both land purchase and construction expenditures for larger projects and new developments. For example, if a developer wishes to spend £100,000 on a plot of land and another £500,000 on building homes on it, a lender might finance 50% of the plot purchase and 70% of the construction.

In this case, the developer would just need £200,000 of their own money, rather than the £600,000 overall project cost. Allowing them to use their personal cash for other projects or unexpected bills.

Developers who also function as landlords can acquire financing by using property they already own. You can receive finance to buy more properties if you have enough equity in your portfolio. Allowing you to build your property portfolio without needing liquid cash.

Eight practical property development finance options tips

Property development is a fascinating and diverse field to work in. However, navigating the various methods for managing and funding a project can be a minefield. Especially if you have little experience. There is a slew of additional mistakes to avoid, and there will always be some ‘on-the-job’ learning in this post, we’ll go over some helpful hints for property developers.

I have a unique view of property development finance options from both sides of the fence, having personally developed a number of properties and having worked in commercial finance for years. These pointers will guide any serious property developer through the process of raising development finance. From the original acquisition price to project completion.

#1. Do your research

It’s critical that you comprehend the situation completely. One of the most common mistakes aspiring developers make is picking the wrong location for a project and going into it blind. You’ll receive a more realistic picture of the place and its possibilities if you do your homework and ask the appropriate questions, and you’ll be less likely to run into problems down the road.

#2. Get planning permission

In the development process, obtaining planning clearance is critical. You should first contact the council to see if your proposed development would require planning clearance. Depending on the nature of the development, it can be a lengthy process. While lenders can provide financing contingent on obtaining planning approval. This will be meaningless if permission is not, and it may be more expensive as a result.

#3. Prove your experience

Lenders want to collaborate with experienced developers. This is why they’ll frequently request your resume as well as the resumes of other members of the development team. It will help your case if you have prior experience delivering development projects. If you’re a first-time developer, on the other hand, you’ll need to demonstrate that you’ve done your study and can add both experience and capital to the project.

#4. Get competitive quotes and budget for contingencies

Whether you plan to build with your own hands or engage outside contractors, you should receive competitive quotations that fit within your budget. Any property development finance options expenditures can quickly add up, and it’s also a good idea to factor in the possibility of going over budget or running late. You’ll be better prepared for any unexpected charges if you include a contingency in your budget usually 10–15 percent in either direction.

#5. Own the site outright if you can

Having complete ownership of the land or property on which you plan to develop is a huge plus for your application. An unencumbered asset is a land or property that has no current mortgage or term loan on it; in these cases, lenders can often offer up to 100% of the development expenditures.

#6. Fill in the documents requested fully and carefully

Complete the application forms completely incomplete application forms show a lack of enthusiasm in the project and reflect poorly on your development financing proposal. Make your application as solid and complete as possible.

#7. Fund the development appropriately

Finance for development projects can be in a variety of ways. Solutions are adaptable, allowing them to function with a variety of construction timetables and repaying capacities. Using short-term finance for acquisition and construction costs. Sometimes known as bridging finance by lenders, and then ‘exiting’ into a longer-term loan or commercial mortgage, is a typical alternative.

In this sector, there are numerous competitive lenders with varying appetites for lending. Depending on the area and the development project at hand. However, keep in mind that you’ll need to have a plan in place to get out of these short-term loans. Such as selling the house or refinancing into a long-term loan. As the application progresses, we can assist in discussing these possibilities.

#8. Consider getting a project manager

Despite the fact that they are an added cost, a project manager may really save you money in the long run. They may make a major difference in how effectively you stick to your budget and timetable. As well as assist you to prevent unforeseen costs, by acting as a mediator between different teams of contractors. If you’re new to property development or beginning on a new type of project that you haven’t done before, experienced project managers can help you feel confident that your project will be a success.


Will banks lend to property developers?

Yes – if you’ve got the right exit strategy in place and the lender deems you eligible, you can get a loan for property development. The type of loan you get will depend on what you need the funds for.

Is property development still profitable?

As with anything worth doing, property development is not easy, especially for first-timers. But done right, property development is still profitable. Once you are familiar with the process, you are better able to plan and anticipate potential pitfalls, leaving you to concentrate on maximizing your profit.

Is property development a good career?

If you decide to buy and renovate yourself, you probably own a property already. Property development is not a career for a school-leaver or recent graduate. … “You can make a career out of it and it can be extremely rewarding. Just make sure you are organized and prepared to work hard,” says Fletcher.

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