Development Finance

What Is Development Finance?

Property development finance in the UK refers to the financing of the acquisition, renovation, and construction of real estate properties. It is a type of loan that is specifically designed to meet the needs of property developers, who require financing to purchase land, design and build new properties, or renovate existing ones. Property development finance in the UK is provided by a variety of institutions, including banks, building societies, and specialized property development finance companies. The terms of the loan, such as the interest rate, repayment period, and security requirements, will vary depending on the lender and the specific project. Some of the key factors that lenders will consider when assessing a property development finance application include the experience and track record of the developer, the location and potential value of the property, and the feasibility of the project.

How Does Development Finance Work?

Property development finance typically works in the following way:

  1. A property developer identifies a piece of land or property that they wish to acquire, renovate, or construct.
  2. The developer approaches a lender, such as a bank, building society, or specialized property development finance company, and submits an application for a loan.
  3. The lender will assess the developer’s application and carry out due diligence on the project, including evaluating the developer’s experience and track record, the location and potential value of the property, and the feasibility of the project.
  4. If the lender is satisfied that the project is viable, they will provide the developer with a loan, typically in stages. For example, the lender may release funds to the developer at different stages of the development process, such as for the purchase of land, for the design and planning stage, for the construction stage and for the completion stage.
  5. The developer will use the loan funds to purchase the land, design and construct the property, or carry out renovations.
  6. As the project progresses, the lender will monitor the progress of the development and release funds as required.
  7. Once the project is completed, the developer will typically sell the property to generate a return on investment, and use the proceeds to repay the loan to the lender.

How To Get Development Finance

Here are some steps to getting property development finance in the UK:

  1. Develop a detailed business plan: This should include information about the property you plan to develop, including the location, size, and potential value. The business plan should also include a detailed construction budget, a cash flow forecast, and projected income and expenses.
  2. Gather the necessary documentation: This will typically include financial statements, tax returns, and proof of income, as well as documents related to the property such as planning permission and building regulations.
  3. Find a lender: Look for lenders that specialize in property development finance. Banks, building societies, and specialized property development finance companies are all potential sources of funding. You can also check online platforms that connect borrowers and lenders.
  4. Make an application: Submit your business plan, supporting documentation, and loan application to the lender. Be prepared to answer questions about your experience and track record as a developer, and be able to demonstrate the viability and profitability of the project.
  5. Negotiate terms: Once your application is approved, negotiate the terms of the loan with the lender. This will include the interest rate, repayment period, and any security requirements.
  6. Secure the loan: Once the terms of the loan have been agreed upon, provide the lender with any required collateral, such as the property being developed or other assets.

It’s worth noting that getting property development finance can be a competitive process and not all applications will be approved. To increase your chances of success, it’s a good idea to have a strong credit score and a solid track record as a property developer, as well as a well-researched and viable project.

Who Offers Development Finance In The UK?

There are several UK companies that offer property development finance, including:

  1. Aldermore: Aldermore offers property development finance to professional developers, providing funding for a wide range of projects including residential, commercial, and mixed-use developments.
  2. Shawbrook Bank: Shawbrook Bank offers development finance for commercial and residential property development, including land acquisition, construction, and conversion projects.
  3. Octopus Property: Octopus Property is a specialist lender that offers development finance for both experienced developers and first-time developers. They offer funding for a wide range of residential and commercial projects.
  4. Together: Together offers development finance for residential and commercial property developments, including land acquisition, construction, and conversions.
  5. Lloyds Bank: Lloyds Bank offers development finance for residential and commercial property developments, as well as funding for land acquisition, construction, and conversion projects.
  6. West One Loans: West One Loans is a specialist lender that offers development finance for residential and commercial property development projects.
  7. Paragon Bank: Paragon Bank offers development finance for experienced property developers working on residential and commercial projects, including land acquisition, construction and conversion.
  8. Santander: Santander offers development finance for experienced property developers working on residential and commercial projects, including land acquisition, construction, and conversion.

These are just a few examples of companies that offer property development finance in the UK. It’s worth noting that the terms, conditions, and requirements for property development finance can vary depending on the lender and the specific project. For these reasons, we would always recommend a UK financial advisor that specialises in development loans.

What are typical development finance rates in the UK?

The typical interest rates for development finance in the UK can vary depending on a number of factors, including the type of project, the lender, the developer’s experience and track record, and the overall risk of the project.

Typically, development finance rates are higher than traditional mortgage rates because they are considered to be higher risk loans.

Interest rates for development finance can range anywhere from around 5% to 15% or more. Some development finance providers offer fixed or variable interest rate options.

It’s worth noting that some development finance providers will also charge additional fees, such as arrangement fees, exit fees, and broker fees, which can add to the overall cost of the loan.

It’s also important to take into account that development finance is usually a short term finance and the lender will expect the development to be completed and sold or rented out within a specific timeframe, usually between 12 to 24 months.

It’s important to shop around and compare development finance rates and terms from different lenders, and consult with a financial advisor or a mortgage broker to get the best deal for your specific project.