Development Loans

Development Loans

Get the finance you need for your latest property development, construction or renovation project with a development loan. Financing is fast, flexible, and can be adapted to your needs and the timelines of your project.

Development loans can be used for a variety of different projects – financing self-builds or extensions, large scale construction projects, property development and renovations, or commercial refits and conversions.

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A development loan is a short term, secured loan that is used to fund a project while the work is being completed. The loan is interest-only, and is usually paid back by the sale of the completed property, or by refinancing onto a traditional mortgage or buy-to-let mortgage.

When offering development loans, lenders look at things slightly differently from traditional mortgages. With a traditional mortgage, a lender focuses mainly on assessing affordability – your ability to make monthly payments to pay back the loan.

With a development loan, a lender will look at the profitability of the completed development, your exit strategy to pay back the loan, and how the work will be completed – the timelines, the costs, any track record you might have as a developer, and the track record of the contractors you are using to complete the work.

Initial funds are usually provided to purchase the land or the site, or to refinance any existing debt. After that, funds are released in stages, according to your project schedule, to pay for the work as it is completed. This means that you’re not paying interest on money you can’t spend yet and that the money from the loan is allocated in the most effective way.

The lender will check your progress, to make sure it is in line with the schedule you provided during the application process. They will appoint a quantity surveyor to monitor the progress of the work.

The maximum amount you can borrow with a development loan is usually worked out as a percentage against the future value of the property, known as the Gross Development Value or GDV.

Lenders will generally let you borrow between 60% – 70% of the GDV, which is the expected sale price or revenue that will be generated from the completed development.

The percentages offered will depend on the lender, their respective criteria, the project and your own personal circumstances.

Development loans are flexible – they can be used for a number of different projects of varying size and scope.

Because funds are released in stages, this helps you to manage your cash flow, keep your project on track, and means that you are only paying interest on the funds you have used.

Development loans have higher interest rates compared to other mortgages. This is because of the perceived higher risk to the lender. That said, interest rates are still very competitive.

The application process for a development loan is more involved, compared to other mortgages. Lenders will want to see detailed plans and project schedules, financial forecasts to assess the project’s future value, and you’ll generally need a proven track record of successful development projects to get the best rates.

Development loans can come with additional fees, such as valuation, arrangement and exit fees, as well as drawdown fees paid when funds are released, and fees for quantity surveyors. These additional fees can add to the total cost.

Development loans and bridging loans are similar, in that they are both short-term, interest-only secured loans, but a development loan is usually used when the project or work is more complex or larger in scale.

A full, ground-up build of apartment buildings is likely to require a development loan, whereas a purchase of a single property from auction for renovation and sale could be achieved with a bridging loan.

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Representative example: Interest is calculated monthly, starting from 0.45% and can either be rolled up (payable at the end of the development loan term) or serviced (payable on a monthly basis). Terms can be considered up to 36 months.