Property development can be one of the most lucrative industries to invest in. Development finance makes it possible for you to take on large property development projects without which most complex projects would not be able to proceed.
Development finance is a loan type that can be secured against property or land. Unlike normal mortgages, development finance loans are typically short term with a longer-term exit plan. They are usually provided to facilitate or speed up projects like building or property conversions. Once the project is completed, the property is either sold or refinanced to clear the loan.
Most lenders usually finance a percentage of the site buying provided there is a relevant development and exit plan in place. If you do not have a formal planning, there are loan products that allow you to buy and get planning at the same time. The lender bears most of the risk during the construction process as the security can be hard to pay if the borrower defaults. For this reason, development finance loans have high interest rates, which makes them unviable as long-term loans. Further to the completion of a development loan, DNA Financial Solutions are able to explore your refinancing options with you
Getting a development finance loan
The cost of getting a development finance loan can vary depending on the lender. Most lenders charge from 5% to 15+% per annum. The interest rate you are charged depends on the risk associated with your project. The lender considers the location of the site, the borrower’s experience in property development, the loan to GDV ratio and the size of your loan.
There will be other fees to consider on top of the interest. Lenders generally charge a fee for loan processing, which is usually 1% to 2% the loan amount.
How much you can borrow
The amount you can get as development finance is determined by the value of the development. The loan is often released in phases as a way of managing the loan to value ratio. The timelines of releasing of the funds can be monthly or according to set benchmarks. A surveyor is appointed to ensure that the timelines are well calculated. This way, the project does not halt because of a lack of funds.
Advice on development finance can really get your venture off the ground and allow you valuable time to oversee the works and ensure that everything runs smoothly. Get in touch if you’d like us to support you on your next project.