Development Finance

How Dose Property Development Finance Work?



If you are involved in large property developments or renovation projects, development finance can be an option to consider. On offers, prime features of the development finance are as follows:

  • Finance to develop new builds and conversions
  • Single units and multi-unit projects
  • Semi-commercial buildings
  • Residential property
  • Joint venture projects
  • Land purchases included
  • Finance for any level of experience

What’s more in this article? Let’s begin;

Development Finance Decoded

Development finance is also known as a short-term funding option in the market, usually ranging from 6-24 months. It is designed to help with the purchase and build costs associated with commercial and residential development projects. This can be anywhere from new build to refurbishment covering single to multiple units built across several phases.

At Finspace, we offer several property development funds that can be tailored to your needs.

Development Finance – In Two Parts

Buying the Land

The first component of the funding will often be used to aid with the purchase of the development site. This could be land where several new properties will be built or an existing property that will undergo a refurbishment.

Financing the Building Cost

The second stage of the loan is used to pay for the costs of the building works associated with the project. This is usually drawn in segments, as opposed to being given in one amount at the outset. This often happens once a month as work is completed on the project.

Amount of Funding You Can Get

The amount of funding that can be offered will be proportional to the following key factors evaluated in the professional valuation report.

  • The current value of building or land
  • Build cost
  • GDV value (gross development value)

Remember, each lender will have parameters that determine the value of your project and how much they can lend. At Finspace, we will approximately lend up to 65% of the current value and 100% of the build cost on most of all our development funds. Each deal is assessed specifically but the funding must be planned in a way to make sure there are enough loans in place to complete the build in total.

Many developers ask, can development finance be used for smaller projects?

ANSWER: For smaller projects, other options can be more suitable. A bridging loan can provide a quick burst of funds which is usually repaid just as fast. This is useful for situations where you’d need a short-term loan. Many investors mostly use bridging for auction purchases. Homeowners can also use a bridging loan if they’re in a sequence and need to move out before selling their own home.

Refurbishment finance is another alternative for smaller-scale property projects, such as refurbishing a property to resell it for an income. The funds are largely used to spend on the refurbishment of a property.

If you wish to develop your property, you could apply for self-build finance. Self-build mortgages are for personal projects, such as building your own house, and not necessarily for the venture. That being said, lenders will need to be sure your project is possible.

Things Needed For Your Proposal

Here we will give you million-dollar advice that will strengthen your case or application – work with a professional finance broker. There is no better way to achieve a green flag on your application more smoothly. They know what lenders need. It is important to have a plan for your proposal ready.

An expert broker can help you with your application, and we’ve listed the key areas you’ll need to consider before applying. Remember, a plan will minimise your own financial risk, not just the lenders.

Your development finance proposal should include the following:

  • Purchase price of the property and land
  • Planning authorization
  • Building policy
  • Any previous experience (documented)
  • Information of contractors 
  • Exit strategy 
  • Total build cost (detailed breakdown including materials and labour)
  • Gross development value (GDV)
  • unforeseen event plan
  • Single, joint, or group venture?
  • Potential acquiesce of the project
  • Duration of the project (including stages of development)

All in all, having an expert can ensure your proposal meets the requirement of lenders. In this way, you can be sure you are getting the best deal that you are eligible for.

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