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Top 10 Finance Ltd, Development Finance Rex House 4-12 Regent Street, London, SW1Y 4PE
Property Development Finance and Property Development Loans are short-term funding options, used to develop either an existing building, i.e. refurbishment, conversion, or a new build. Development Loans are usually taken over a period of between 6-18 months. This really depends on the type of Development; with a light refurbishment it would be as little as 3 months, and with a larger scheme up to 18 months.
The thing to remember with any Development Funding is that you will need to allow for a reasonable re-sales period to be factored into the loan period. If you do not take this into account and your properties have not sold within the agreed loan facility, you could end up paying for another arrangement fee to extend your Development Loan.
Up until the financial crisis in 2007 most Property Development Loans were made by banks, even developers with little or no experience could walk into their local branch and arrange Development Finance over the counter. This all changed after the financial crash when high street banks completely withdrew from lending, and as such, it was nearly impossible to arrange any type of Property Development Loan.
As always when a void opens up in a marketplace, bridging loan companies and specialist lenders stepped in to offer Property Development Loans where the banks had withdrew. These were expensive but in the circumstances, developers had little choice but to turn to the new lenders for their Development Finance. The only other option was to stop developing and as such the extra cost was soon factored into the Loan appraisal and the market gradually began to recover.
As the market began to recover in certain areas of the country, banks began to offer existing customers Development Finance again. However, they would not consider clients from other banks and developers had to have a solid track record of completed schemes before they would even look at deals. In the meantime, the specialist lenders and bridging loan Companies went from strength to strength, rolling out many new products in an effort to compete with each other for business.
Although taking out Development Finance was expensive, at least it was available. In addition, they offered many more Finance Options that banks would not, including Development Finance for first-time developers with little or no track record.
Property Development Loans can be arranged at up to 90% of costs from specialist Development Finance Lenders. However, the interest rates are higher than with a High Street Bank. Most Property Developers are happy to absorb the extra cost, as it allows them to make their cash go further, i.e. they can do two developments rather than one. Even experienced property developers who can obtain Funding from their banks are choosing this option for their Development Finance, in this way they can preserve as much of their cash as possible and build more schemes.
High Street banks will usually offer Property Development Loans of up to 60% of costs, way short of a specialist lender. Usually, if you got an offer of development Finance from a bank, they normally want you to put your 40% cash in on day one. This option is far less attractive than taking out your finance from a specialist lender.
As with most things, it's all about presentation and with most Development Loans you only get one shot at it, so it’s important that you get it right the first time. It's best to use a specialist broker who is experienced in presenting schemes to the Lenders; they will package your deal and present it on a selective basis to the most suitable lender.
There are many lenders offering Development Funding and they all have their favourite type of project and or locations that they are comfortable with. We have many years’ experience in dealing with lenders in this sector.
What Costs to Expect on a Development Finance Loan?
This is dependent on the experience of the property developer. Rates can be as low as 4% pa and they can go as high as 20% pa for say an ex-bankrupt, so the range can be anywhere in between. Also, most lenders charge an arrangement fee of between 1-2% of the loan amount.
Some Lenders also charge an exit fee, although not all. This is usually a percentage of the GDV (gross development value), and around 1% to 1.25% depending on the Development Loan period, i.e. 1% of gross development value for a 12-month loan 1.25 % of GDV for an 18-month loan.
Experienced Property Developer, Development Loans.
So what is an experienced Developer? Generally, you will have completed at least 4 to 5 projects and sold on for a profit. A builder or building contractor would not be considered a Property Developer, neither would someone who developed and kept the finished properties in a portfolio. The key is the selling. Also, there are many skill sets that a Developer has that a Builder would not possess. As always, experience and dealing with the many pitfalls that come with Property development, selling on, keeping a tight control over costs and not overdeveloping (something some builders do proudly). It is great having the best spec and design but will it add profit?
First Time Developers With Little or No Experience
For Property Developers with little or no previous experience, we can still provide finance to get you up and running whilst most high street lenders will not entertain developers with no experience we have many other lenders who will look at the bigger picture, furthermore we are experts in dealing and packaging your loan application to give you the very best chance of getting finance for your first project, we work with all types of developer and have had many years of experience providing Development finance
What can you do now?
To get the ball rolling give us a call on 0800 138 6001 anytime 24/7 or you can talk to us on chat or complete the web form and we will give you a call at a time that is convenient to you.
Get in touch you can call us anytime 24/7 or fill in the form on this web page and we will contact you to provide your quote.
With over 20 years experience you can be assured of the very best help and advice from our team.
Development Funding is from £50k up to £20m for New Build, Conversion and Refurbishment projects