Unpicking the pros and cons of an open-ended bridging loan, the difference between open and closed bridging and what is the best choice loan for you.
Property development finance: who is eligible, what is the qualifying criteria and what costs are involved? How Brickflow can help you apply and secure the best development finance loan for your project.
|What's in this guide
Who is eligible for development finance?
Property development finance is money loaned for the purchase of land or sites and the construction of new residential, commercial or mixed-use buildings as a profitable business venture. This includes ground-up construction and refurbishments or conversions of existing buildings. So who is eligible for development finance? Essentially anyone: securing funding for property development is focused on the viability of the project as well as the individual borrower. If you can present a concrete project with a Gross Development Value (GDV) that aligns with market research, and development experience (or surround yourself with an experienced team), you will typically be eligible for development finance. Development finance can be arranged through large national banks or building societies, or with specialist lenders.
Borrowers should view lenders as investors, so demonstrating meticulous costing for every element of the build, including contingency planning, and assembling an experienced team of professionals to deliver the project will pique their interest. There are over one hundred development finance lenders in the market that receive an average of 25 applications for every one loan they complete, so a professional presentation is crucial.
On top of the usual finance eligibility criteria (18 years or older, UK residency, proof of ID and address)lenders will perform credit searches and complete further due diligence. Poor credit won’t necessarily make you ineligible for funding. Development finance lenders tend to be more relaxed about credit than residential mortgage lenders if they like everything else about the project. Being upfront and explaining any credit issues will avoid the lender uncovering things later, which could result in a rate or fee increase or even declining the loan. If they know upfront they will generally be more sympathetic.
What is the criteria to get development finance?
Other than a viable project, what is the criteria to get development finance? This is tricky to answer because every single development finance lender has different lending parameters and policy criteria.
However, there is some general criteria that is typical for most lenders:
- 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
- the borrower will require an equity contribution
Additionally, all development lenders will expect some level of Personal Guarantee. Personal Guarantees are conceptual security and are 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, providing a cash deposit, offering a charge over another property, or reducing leverage to less than 50% LTGDV.
The terms and conditions of the loans, how much you can borrow, interest rates, day-one land caps and equity requirements vary extensively with every development finance lender. Through our experience in the industry, we know that all too often, developers apply for funding but realise part-way through the finance process that there is a piece of criteria they can't meet. Meaning they either abandon the loan, losing any fees paid and time spent, or compromise on the loan conditions. That's why at Brickflow we created an extensive eligibility checker that answers thirty of the most commonly asked credit policy questions for each lender, and continually updates new or changed lender criteria. So to avoid getting caught out on small-print criteria, compare loans on Brickflow and use our Filters and Check Eligibility button to see which loan is a fit for your project.
What are the costs involved in development finance?
When you have found a great project and researched funding options, the next thing to ask is what are the costs involved in development finance? Whilst every loan will differ in exact figures, borrower costs will always include:
- Interest: the lenders charge for borrowing the money, typically expressed as an annual percentage rate (APR) and rolled-up and paid off at the end of the term. Naturally, it will vary depending on the lender, loan amount, and repayment terms.
- Arrangement fees: a one-time fee to cover the lender costs of setting up the loan.
- Valuation fees: lenders require a professional valuation of the site and developer’s project to determine its finished market value and to assess the security offered for the loan.
- Legal fees: may be charged for drawing up the loan agreement and for carrying out the necessary searches and checks on the property.
- Exit fees: most lenders carry an exit fee – if you repay the loan early it doesn’t generally increase, but you could reduce interest costs by repaying early.
- Monitoring fees: During the development process, the lender will require regular updates and reports on the progress of the project. Typically the lender will outsource this to an Independent Monitoring Surveyor and there will be fees charged for this monitoring service.
If your development hasn’t sold before the loan expiry, lenders may be willing to extend the loan provided they’re happy with the progress to date and you're still within the contracted loan covenants. But you will incur a fee. Another option is to explore developer exit products that will provide a longer sales runway and perhaps release some equity for other projects.
Also, interest rates can rise during the loan term because most development loans are floating, i.e. they track the Bank of England Base Rate, SONIA and their own internal finance costs. For borrowers who prefer to know their exact cost of development finance, a handful of lenders will fix their rate for the entire term. The Brickflow system identifies these lenders quickly and easily and a specialist broker can source a fixed-rate loan.
How to apply for development finance?
The next stage in the property development process is knowing how to apply for development finance. The truth is, the development finance market can be complex with a bamboozling number of lenders and loan types and almost no capacity for developers to compare actual lending options. At least, that’s what the market is like for borrowers who haven’t discovered Brickflow.
From our own experience in property development, we wanted to remove the tedium and simplify the entire process of securing development finance. So we created incredible software that searches and compares loans from over forty lenders in just minutes (the UK’s first and only digital marketplace for property development loans).
Our process is blissfully straightforward, it takes just two minutes to search and less than thirty minutes to apply. It’s simple: Search, Apply, Build.
- Compare more than 40 lenders instantly: run the financials of your project and asses how viable it is against real-time lending options.
- Create a winning development appraisal: the main reason loan applications are rejected is poor presentation. Our appraisal template is one that all development lenders love and it’s ready for you to use.
- Contact us: we’ll put you in touch with a specialist property development finance broker
- Apply: with your broker, you can apply to multiple lenders with one online application.
Typically, it takes months for lenders to respond to applications, but at Brickflow our process is so clean-cut, with every ‘i’ dotted and ‘t’ crossed that lenders are responding in minutes. And we're not just fast, we’re sourcing loans that can reduce borrower equity input by tens or even hundreds of thousands of pounds.
To get the best deal that perfectly matches your criteria, compare loans at Brickflow today, or tell your development finance broker about our revolutionary tech that they’re missing out on.