What are the different types of development finance? A short guide looking at the options for funding property development and how to get finance.
At Brickflow, getting finance for property development couldn’t be easier and we’re on a mission to make the market more accessible to all. Today we’re discussing development finance options, eligibility criteria and how to secure the best finance for property development.
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How to get finance for property development?
Whether a single house conversion or a largescale site, you’ll need to know how to get finance for property development before you can get started.
The fundamental element in any application for property development finance UK wide is presenting a professional and thorough development appraisal presentation. This is your chance to show off your ideas, experience and the merits of the project. It should be methodical, accurate and detailed. Deliver it with confidence and clearly demonstrate to the lender that you and your project is worth investing in and will deliver a sure profit.
As a minimum you should present:
- an overview of the project
- developer and team CVs
- development appraisal – the main body of the presentation, with itemised costing of contractors, materials, etc., site details, and contingencies
- property schedule – specifics on every unit being built
- market comparison
Lenders love detail, so bolster your chances of approval by including some extras, such as:
- planning permission details
- design and accessibility statement
- brochures of previous projects
- a site tour video
For less experienced developers or even first-timers, surrounding yourself with a team that does have relevant experience is crucial for a lender to consider your application. Choosing the right property development team will also help to complete the project on budget and on time.
Since funding for property development is assessed on project viability and the strength of the development team, knowing every millimetre of your proposed build and having in-depth market knowledge is essential. When you’re confident in your project, a specialist broker that uses Brickflow’s tech is the surest way to secure the best property development finance.
Property development finance options
Depending on your project, there are a few different property development finance options.
The loan will typically be arranged through a high-street bank, non-bank or specialist lender. Rates, LTV limits, repayment terms and lending criteria will be vastly different with every lender and can be project specific.
It helps to know some basic criteria of specific development finance options:
Personal loan – not specifically development finance, most banks offer up to £50,000 but there are restrictions on how it’s used. They cannot normally be used as financing for property purchases but it might be possible to use to fund renovations (you need to check your individual lender Ts and Cs).
Buy-to-let mortgage – require a minimum deposit of 25% and the property must be in liveable condition, with an EPC of D or above. Unless the project is the lightest of refurbishments, it’s unlikely that this will be a suitable product. Typically offered on an interest-only basis with option to pay up to 10% of the balance per year without incurring charges.
Bridge to let - purchase on bridge at 75%. Lender may or may not fund some or all of the build costs. You then have a certain time (normally) 6 months to complete the work and convert to a BTL.
Buy-to-sell mortgage – another term for bridging finance, aimed at investors buying and selling a property within 12 months, avoiding the conditions of traditional mortgages like early repayment charges or meeting minimum loan term before selling
Bridging loans – fast, flexible short-term finance that can be used for a myriad of property investments, such as auction buys or sites without planning. Up to 75% gross loan to value.
Property development finance – the top-gun of finance options, this niche sector can provide developers with funds from £150,000 to £150m over a period of 9 – 36 months. Between 55% and 90% of development costs can be loaned (inc. lending costs).
Cash – of course, cash can be used to fund an entire project. But using financing for property development means equity can be spread across multiple sites instead of ploughed into a single development. Spreading equity can significantly increase your return on capital employed (ROCE).
Most property development finance options have higher interest rates than long-term financing, but borrowing costs should be factored into any profit calculations.
Am I eligible for property development finance?
If you think one of the above options is for you, you might now be asking am I eligible for property development finance? Since securing funds for property development is based on the strength of the project as well as the borrower, if you have a good project you could be eligible.
For a concise analysis of your project and to see exactly how viable it is, run your figures through Brickflow and see if they stack up against real-time borrowing options.
Every loan to buy property, make extensive renovations or develop an entire site will have vastly different lending parameters, policy criteria and eligibility requirements. A specialist broker will have an idea of which lenders can match your requirements.
Eligibility criteria that apply to every loan for business development:
- applicant must be 18 years or older, and some lenders will want you to have UK residency and proof of ID and address
- the project must solely be developing property as a business, i.e. to make a profitable sale or rental income
- the loan term will be between 6 and 36 months
- typically between 50% and 70% of site value and up to 90-95% of build cost will be loaned
- an equity contribution is required
- lenders will perform credit searches – poor credit history won’t necessarily make you ineligible for funding, but being up front about any issues will help to gain lender confidence
Lenders also need a Personal Guarantee as a form of conceptual security. It can be enforced if a loan goes wrong, for example, if the scheme is sold for less than the amount owing. Alternatives are providing a Corporate Guarantee, a cash deposit, offering a charge over another property or reducing leverage to less than 50% LTGDV.
If you and your project fit with these criteria, it’s highly likely that you are eligible for property development finance.
Need help to get development finance?
The better informed you are about the development finance market, the easier it is to find a better deal, but you are still likely to need help to get development finance. Specialist development finance brokers have spent years building up knowledge and fostering working relationships with lenders, so they know the market inside out.
When this expertise is combined with Brickflow’s phenomenal software, brokers can compare products from over forty lenders in minutes.
What’s even more incredible is our eligibility checker that answers thirty of the most commonly asked credit policy questions for each lender, and continually updates new or changed lender criteria. All too often developers come across some small-print criteria mid-way through an application that they can’t meet. Their options are to abandon the loan, wasting weeks of time and losing any fees paid, or compromise on the loan conditions.
To avoid that saga, Compare loans on Brickflow and use our Filters and Check Eligibility function to find the loan that perfectly suits your project and rule out lenders that don’t.
Development finance lenders receive an average of 25 applications for every one loan they complete. That’s why we created the Smart Appraisal™ for a project presentation that lenders love and we know every loan submitted using Brickflow’s platform is approved.
We’ve got plenty more tips on what lenders are looking for and building the perfect professional presentation.
Our mission at Brickflow is to help everyone get the best possible development finance or bridging loan, reduce their equity input and scale their business sooner. To learn more, register with Brickflow or tell your property development finance broker about our revolutionary tech.
If you’re a broker, sign up to Brickflow and deliver a DIP to your clients today.