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Property Development Finance Lenders are banks and financial institutions who provide funding for property developers in order for them to successfully develop property for onward sale, these lenders offer funding to business or individuals developing professionally. There are around 6 high street banks in the market who offer finance, however, these lenders tend to offer funding for existing clients only and even then they would only offer funds to fully experienced property developers with at least 3 or for completed developments which have sold successfully. They do offer the cheapest interest rates but very few developers would qualify for a loan with them. In addition to these lenders their are over 80 specialist lenders who also offer funding for property development, these are a mixture of bridging loan lenders who entered the market when the high street banks pulled out after the last financial crash, there are also around 20 lenders who have been around for many years offering property development finance, these lenders only offer development funding and would generally have the same criteria as a high street lender but would be more flexible on the interest rates offered and the amount of experience a borrower had, however, they would also look towards lending to developers with at least one successful project completed.
Bridging loan lenders who also offer loans for the development of residential property are far more flexible in their approach and will consider first time developers as long as they show a degree of professionalism and look at the project as a business transaction rather than someone who is just doing up houses, they will offer finance for this but this would be called refurbishment finance and would be for up to 9 months.
Bridging loans lenders who offer property development finance are usually a lot more flexible in what they would fund, they tend to offer slightly higher interest rates but this can be offset by the fact that they will fund more projects, who you choose is really down to your current circumstances and how much cash you have to put into the development on day one, many high street lenders will only finance up to 60% of the gross development value and some even want you to put your 40% cash in on day one, which few borrowers like to do. With specialist lenders and bridging companies, they are far more relaxed about this they would only want to see proof that you had the cash to fund your portion of the site acquisition costs and often their model is to fund all of the development after the site purchase.
These lenders will also offer far higher loans to value with many going as high as 90% of all of the costs that you need to develop the site. Interest rates are higher but it will allow you to keep more of your cash for other developments or just as a fall back position should you encounter any cost overruns on the development. They will also look to change the development loan to a lower cost bridging loan when the loan expires as development finance is far more expensive than bridging finance this can be a big advantage as you can hold out for a higher price, the reason for this is because once the properties are completed a large element of the risk has been reduced.
Obviously all schemes are different and borrowers circumstance also, with regard to the interest rates that you can expect with a high street bank they can go as low as 4% p.a however you will also have to pay an arrangement fee of up to 2% of the loan value and then an exit fee which can also be as much as 2% of the overall development value, whilst bridging lenders also charge a 2% arrangement fee they do not charge an exit fee at all this can make a huge difference when you come to make a comparison on the overall financial cost of your funding, it pays to go through the numbers and work out what the actual cost is going to be taking into account all of the above factors.
What you can do now
We have been helping developers find suitable lenders for many years and as such we will go through your project in fine detail and come up with a suitable lender that best matches your requirement and also point out to you how each offer relates to the amount you will spend on finance, simply give us a call or use our web form to contact us.
With over 20 years experience you can be assured of the very best help and advice from our team.
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