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Development Finance

Development finance is used s to fund development projects such as new build constructions and property conversions. To gain a deeper understanding of this topic, read our comprehensive guide on development finance, or contact us if you need any assistance.

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Property development is crucial for economic growth and long-term prosperity. Moreover, housing developments and infrastructure improvements benefit from development finance. This funding supports projects that create meaningful change for local communities and residents.

What is Development Finance

Development finance refers to loans and grants used to aid property development.

Moreover, both public and private developments can create jobs and stimulate growth. They also increase access to markets and resources, reduce poverty, and improve living standards.

Development can take many forms, such as building new flats. It can also involve expanding a single property into a larger dwelling or creating a new housing estate.

 

The Role of Development Finance

Development finance plays an essential role by providing the funding needed for developments. Consequently, these promote economic growth and bring about long-term change for local communities.

Development finance offers access to capital for small businesses and entrepreneurs who need funding for smaller projects.

Through development finance, these individuals can fund their projects and contribute to their local economy’s development.

Who offers development finance?

The first step in accessing development finance is understanding the different sources available. For example, development finance is available for small and medium housebuilders through the Government via The Levelling Up Homebuilders Fund. The Fund supports smaller housebuilders who struggle to access finance through traditional bank lenders, with loans starting from £250,000.

There are many lenders in the market who offer development finance. This includes high-street banks and specialist lenders. Consider a mortgage broker if your business bank rejects your development finance application. They specialise in development finance and can help find alternative lenders. This is because high-street banks often have stricter criteria than specialist lenders.

Private investors and businesses may finance development projects in exchange for equity stakes.

Once you identify a source of finance, ensure the project meets all regulatory requirements. This includes proving financial viability and environmental sustainability. The lender will need to see the full development plans.

CASE STUDY:

“.. A Limited Company was looking for a facility of £1.3m to buy a plot of land and develop it into residential property. Whilst one lender offered a 7% rate it had a 1% of GDV (end value) as the fee. Whereas an alternative lender offered a 9% rate with a fee of 1% of the initial facility amount instead. The Gross Development Value (GDV) was £2,500,000. As this case study demonstrates, we look at a variety of options available and work with the client to get the suitable deal for their circumstances..“

How Does Development Finance Work?

In this section, we focus on development finance for private property investors. Typically, investors use a limited company as their business vehicle for development. However, if the development is for the investor’s residence, it is usually in their name. This type of project is commonly called a ‘self-build’.

A. The project: 

Before a lender considers financing a development, they must understand every project detail. This includes the acquisition cost, such as the cost of the land to be built on and whether there is planning permission for the build. Additionally, what will actually be built, and how much will it cost? Finally, what will be the market value of the completed property? This end value is called the ‘Gross Development Value’ or GDV for short.

B. Funding stages: 

With traditional mortgages, funding is fully released at the time of purchase. With a development loan, the funding is released in stages as the development progresses. The developer will be expected to have some money to purchase the land or start the first phase of development. Funds will then be released as each phase of the development is complete. 

C. Exiting the development loan: 

Development finance is usually a short-term loan to cover just the project’s building phase. Once the build is complete, the development finance is normally repaid by the sale of the property, or refinancing the loan to a longer-term mortgage. If the planned exit is the sale of the property, but the developer would like access to the equity that has been created, this is possible using a development exit bridge loan.

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Mortgage Advice..

Thinking of getting a mortgage? Our experienced team of skilled mortgage advisers are here to offer the essential guidance you require. Relying on our comprehensive understanding of the mortgage market, we’ll ensure you secure the perfect mortgage to suit your specific situation. 

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Benefits of Development Finance

Development finance offers several key benefits for developers. Firstly, it provides an easy way to secure funds to purchase land or property and complete work. The loan is released in stages as each work stage is completed. This ensures developers have enough capital for larger projects without overstretching their budget.

The loan can be tailored to individual needs, allowing better cash flow management by releasing funds only when necessary. Furthermore, development finance often has a more flexible approach than traditional borrowing. This means developers can access capital even if they cannot meet strict requirements from banks and other lenders.

Consequently, it becomes easier for developers to access the funds they need to bring their projects to fruition. Development finance provides the necessary capital to complete tasks more quickly and with greater financial security.

Development finance may be perfect if you seek a financing solution tailored to your project’s needs. With quick access to capital and customised loan terms, you can ensure your project is completed on time and within budget.

Development Finance Lenders

Our development finance lenders offer long-term, short-term, and bridging loans to support various projects. Furthermore, our expert advisers can assist you in finding the most suitable lender for your needs. These range from small residential redevelopments to large-scale builds.

We have access to many lenders, including banks, specialist funds, and independent lenders. Thus, our lenders can provide the best development loan based on your project’s requirements. Additionally, our expert advisers will help you source the right funding.

Our advisor team also offers advice and assistance with structuring your deal. Moreover, they guide on the various tax implications that may apply. With Connect Mortgages, finding the right finance for your project is easy.

We will help you find a lender that meets your needs and provide full support throughout the process. Get in touch today to discover how we can assist you with development finance.

Not only do we offer a wide range of products to cover your project’s needs, but the team at Connect Mortgages also provides invaluable advice. Our assistance extends through every stage of your development finance journey.

The difference between development finance and other investment finance products

For certain projects, alternative finance, such as buy-to-let mortgages or standard bridge loans, may better suit your needs.

For example, if you are buying a ready-built property to renovate and make more attractive, a buy-to-let mortgage may be more suitable.

This will depend on the work planned and if the property, in its current condition, could still be let out. For instance, the property could be let out in its current condition.

However, you plan to add a new kitchen and bathroom and decorate throughout, which will take less than a few months. In this scenario, a buy-to-let mortgage is likely to be still suitable. Buy-to-let loans are cheaper than development loans and are already longer-term, so there’s no need to refinance once the work is complete.

If you plan to develop an existing ready-built property but can’t be let in its present condition due to the level of work needed, consider a bridge loan.

Bridge lenders are happy to lend on existing properties being developed, such as extensions or conversions. As long as the property remains watertight and does not require planning permission, then a bridge lender may be a suitable solution. Bridge loans are not cheaper than development loans, but they are more straightforward and quicker to arrange.

Development finance will always be required when a development project involves building from the ground up. Projects requiring planning permission or where an existing property won’t remain watertight are best served by development finance.

Working with a specialist mortgage broker, such as Connect Mortgages, can help you secure the right finance for your project. Our team of experts understands the complexities of sourcing funds for property developers.

Therefore, we can provide valuable advice on getting a suitable deal from lenders. We will help you identify appropriate lenders, negotiate ideal rates for your development project, and ensure all paperwork is completed promptly.

We understand that each development finance transaction has unique criteria, and our team is dedicated to finding the most suitable lender for every borrower.

We take an individual approach to each client’s situation, ensuring that you are fully supported throughout the process. By taking advantage of our experience and knowledge, we can help you get the development finance you need for your project.

 

Development Finance Market and Challenges

The development finance market has grown as lenders recognise the need for specialised services. Additionally, regional and local sources of capital are increasingly vital as more projects benefit from public and private investments.

Meanwhile, competition in the market is intensifying. Lenders now offer more competitive rates and terms, driven by the need to remain competitive in a growing market of borrowers seeking development finance.

Lenders face challenges when providing development finance. They must factor in potential risks when setting rates and developing products.

Lenders conduct extensive due diligence on prospective developments. This ensures that the borrower is qualified and has the resources to complete the project. Moreover, lenders must verify that the development will not harm local communities or businesses.

Lenders also face increasing pressure from government regulations and compliance requirements. These must be met for a loan to be approved. This means lenders need the necessary experience and understanding of relevant regulations before providing finance. Additionally, developers must have the appropriate planning permissions in place.

In summary, the development finance market is an ever-changing landscape. There is increasing competition and more demanding requirements for lenders. Therefore, lenders must assess their risk while complying with government regulations to succeed.

At Connect Mortgages, we aim to save you time and money in sourcing development finance. We can advise on the ideal options available. We ensure the process runs smoothly and help you get the most competitive deal. To find out more, contact us today. We will be happy to discuss your requirements in detail.

 

Final Thought

Development finance is increasingly important and complex. However, by working with the right mortgage broker, such as Connect Mortgages, borrowers can get a suitable deal when sourcing funds for their project.

Our team of experts understand the complexities of this sector. Therefore, you can rest assured that you will receive the right advice and support throughout your development journey. If you are looking for a reliable mortgage broker to help with your project, look no further than Connect Mortgages.

Contact us today, and let us show you how we can help you get the development finance you need.

FAQs: Development Finance

Most frequent questions and answers about development finance

To get finance for property development, you can research the market and approach lenders directly. However, working with a reliable development mortgage broker, such as Connect Mortgages, offers more benefits. Their advice covers many potential solutions, helping you find the most suitable lender for your project.

Connect’s team of experts are knowledgeable in this sector. They provide expert advice and support throughout the entire process.

 

You will not always need development finance to renovate a built property. Instead, a buy-to-let or bridge loan may be more suitable. This depends on the level of work and the property’s lettable condition.

 

Developers will need some initial funds to acquire the asset or start the first stage of development. Development funding can then be raised to fund each of the phases of the development until it is complete. The property can then be sold to repay the development loan, or refinanced to a term loan such as a buy-to-let.

When providing development finance, lenders typically require a detailed business plan to assess the project’s viability. Additionally, they need evidence of the developer’s financial and experience credentials. They will want to understand the cost of the works.

Furthermore, they will assess the end value (GDV) of the project. Development finance lenders usually expect the applicant to have experience with developments. Alternatively, the applicant should work with a professional who has relevant experience.

 

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Liz Syms

CEO at Connect Mortgages

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About the Author

Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.

Read More About Liz Syms

Liz Syms

(CeMAP)

CEO at Connect Mortgages

Linkedin Twitter

About the Author

Liz Syms is the CEO and Founder of Connect Mortgages, a specialist in finance for property investment. With over 25 years of experience in mortgages and financial services, Liz has helped countless people get their dream homes and investment properties. She is passionate about giving her clients the best advice possible when it comes to financial decisions relating to mortgages and protection and is dedicated to providing the highest quality of service. With her wealth of knowledge in the industry, Liz is a respected leader in mortgages and financial services and has grown her team to over 300 advisers nationally. She strives to make Connect Mortgages one of the most successful companies in its field.

Read More About Liz Syms

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