Development finance is a type of lending facility that borrowers use to fund property developments. A developer may often borrow money from a lender for property investment options such as buying land to construct on (with or without planning permission) or purchasing an existing building to remodel, refurb, or change its use.
In the UK his finance is often focused on the construction of new residential dwellings due to their high returns. While this is the most common use of the money, it can also be used to fund regeneration projects, create new commercial premises, or fund mixed-use projects.
As opposed to a ‘regular’ bridging loan where the funds are drawn in a single lump sum, development finance is drawn according to when the project schedule requires it.
Is development finance right for you?
Property development finance can be used by anyone looking to fund their development project. Whilst it tends to be utilised by more experienced developers with years of experience, developers with less experience can also utilise this finance to invest in buildings or land to convert into property developments.
Why use property development?
New houses, renovations, and regeneration projects all cost a significant amount of money before you see a return on your investment.
In order to purchase property investment options such as land, existing buildings, or businesses that they wish to turn into new property developments, developers require a large sum of money up front. In addition, developers planning to build a tenanted property must have a considerable quantity of cash on hand to cover early building costs incurred during the pre-let period. The pre-let phase begins when construction begins and ends when the building is ready to accommodate its first tenant.
Typical property development finance uses:
Development finance has many uses, and can include:
- Residential property development
- Commercial or Mixed-use Commercial property development
- Renovations & refurbishment
- Change of use & property conversions
- New builds
- Single unit developments to large multi-unit
- Finish & exits
- Exit financing
- Sales period funding
In summary
Property development loans are likely to be required by anyone wishing to fund property development projects from the ground up through refurbishing projects.
Developers frequently work with banks or traditional lenders such as building societies, but they are increasingly turning to specialist lenders for more flexible terms and conditions, especially if they don’t meet current lending criteria due to a low credit score, a lack of track record, or a complicated project.
If you think you might require development finance, it’s always worthwhile discussing your situation and project with a specialist broker. They are ideally situated to assist you throughout the process whilst discovering the best lender for your requirements.