The fund is necessary in accomplishing most of our projects and goals in life. If you are into real estate, you will understand it takes money to make more money. Because you need funds to bring your property to completion, and then sell or lease to make a profit. There are various ways to get financing for development projects. This article guides everything you need to know on how to finance property development in the UK. It also explores bridging finance and other means of finance options for property development in the UK.
Property Development Finance
There are a variety of ways to raise money for development projects. Whether you want to renovate an existing building, start up a new building, converse, or do other large-scale projects. Bridging finance is the perfect stop for you. Property development finance loans are often for brief periods, lasting only as long as the building project is complete. It has a period of 12- 18 months. However, if you are not able to repay the loan within the time frame, you can offer to remortgage.
Why Go For Property Development Finance?
Generally, developers go for property development finance because it offers diverse advantages that are promising to them. It enables kick-starting and finishing their project goals.
New Building Or Significant Refurbishing
When property developers need to fund a new building project or offer high renovations and modifications on an existing building, then it is a great option.
It Requires Low Deposits
Deposits are often just 10% of the total cost for large-scale projects. Because of this, developers can raise deposit financing without releasing additional funds. As a result, they are able to decrease their risk by investing in a variety of properties. As a result, they are able to decrease their risk by investing in a variety of properties.
Efficient and Effective Cash Flow Management
Well, no lender will fund your development project without an accurate financial record, this helps to streamline your cash flow record.
High Returns On Investment
Depositing a smaller amount of money at the start of an investment strategy results in a higher rate of return. For instance, a project that costs over £4 million will likely be sold above £5.7 million
How Much Property Development Finance Can I Get From Lenders?
There is no specific amount. You can get a loan from £15,000 to over £10,00,000. But on average, most lenders will loan you up to 70% LTV of finance on any property, whether it is a residential, mixed-use or commercial development in the UK. However, few lenders will give up to 80% and above.
Criteria For Development Finance
One of the many things you will need is the valuation figure and a redemption amount from your current lender.
Lenders Charges In Property Development Finance
Lenders price property development finance above other means of funding in the UK. Some of these charges are below;
Interest charges
Mostly, lenders’ interest rate begins at 4.5% but can be as high as 9% or more depending on your lender.
Arrangement Fees
Basically, arrangement fees range from 1% to 3% of the entire loan amount and are due at the end of the loan period.
Broker fees
This depends on the broker you employed to process the loan, as well as the complexity of the loan.
Exit Fees
Your exit fee is usually a percentage of the loan or the GDV. The GDV is the value of the property upon completion.
Valuation Fee
This is the cost of surveying the property in question.
Lenders Surveyor
Lenders Surveyor lenders appoint their monitoring surveyor to oversee the construction and provide independent reports.
Legal Fees
To finish the documentation for the loan, you must pay legal expenses.
Drawn Fee
Development finance is released in batches. Each time you take money out of the loan, you’ll have to pay a cost called a “drawdown fee.”
How to Finance Property Development
There are various finance options available to developers for property development finance. To begin, identify your project goals and then choose the type of property development financing that is best suited to your project needs.
Some of these are below;
#1. Cash
Cash as a means to finance property development refers to your money. It may be an inheritance or your savings. If you have enough, you can start up your project with your cash.
#2. Buy-to-Let Mortgage
If your idea of buying a property is to let it out after developing it, then your best option is the buy to let mortgage. However, you need to be careful while settling for a buy-to-let mortgage. Mostly because it requires higher deposits when compared to others and also has a high-interest rate.
#3. Buy To Sell
Regular mortgages are not ideal options if you intend to sell off the property after development. If you want to buy a house, refurbish it, and then resell it again, then buy-to-sell loans are the best. It also has something in common with buy-to-let mortgages. They both require a high deposit, as well as a high-interest rate.
#4. Bridging Loan
Bridging finance is short-term loans with high-interest rates for property development. It gets you a quick loan while your other property is still up for sale.
#5. Property Development Finance
This source of finance is mainly for a major project such as a significant renovation or a brand-new building.
#6. Personal Loan
A personal loan as a finance option for property development applies to one home. You can take out a personal loan to refurbish your home.
Bridging Finance For Property Development
Bridging finance is a short-term, flexible loan that helps you accomplish your property development project. It has a unique feature, which is that the funds are usually available promptly. It bridges the gap between one transaction and the next. Furthermore, it lasts between 12 and 18 months and developers take out this loan when there is a property already placed for sale in the market.
However, before lenders release bridging finance to you, they first have to reach a credit term with them, they then assess valuation and security, and once your figure is valid, you will receive your fund for your development project.
Furthermore, bridging finance can be open or closed. While the close has an exit option, the open is not as transparent as the close loan.
When Can I Get Bridging Finance For My Development Project?
People go for bridging loans when they have a property put up for sale, need the funds to buy or refurbish another property. Most real estate developers use this means to finance options for their property development. While lenders get their money back with a hype interest, the developer gets financing to run his commercial development project.
Paying Back Development Bridging Finance
Bridging Finance meets your financial need by giving you a loan to complete your development project. However, it is a short-term loan that comes on the condition that you have a property up for sale and will be paying back the loan as soon as you sell off the property.
While taking the loan, the duration will be agreed on in your terms of credit. It is also assumed that you will sell off the property before the term expires. However, you can opt to remortgage.
In what time frame can a bridging loan be approved?
Getting bridging finance for a development project agreement is likely to take weeks rather than days, but this is due to the nature of the loan itself. However, it still will not take months to approve.
Find the best development finance lenders here
Conclusion
With regards to financing for real estate development, things might get a little complicated. However, Business Yield advise you to estimate the project’s scope, duration, and estimated cost in both the best and worst-case scenarios before applying for any sort of financing. Finally, do not forget to compare lenders before embarking on loan terms. Comparison helps you get the best.
FAQs On Property Development Finance
What is construction Development Finance?
Development finance is essentially a loan that goes towards the purchase of land/construction costs of development.
Can you get 100% development finance?
Can I get 100% development finance without a profit share? Yes, it’s possible, however, you’ll need to provide additional security, usually in the form of property or land. It can be your own property, investment property or land that could be used for development in the future.
What is a joint venture in property development?
In the property market, a joint venture is a temporary but formalised partnership of builders, finance houses and developers, which contract with each other for a particular development project, such as a housing estate, often through the creation of a temporary subsidiary company called a Special Purpose Vehicle (SPV)
