Property Development Finance

Property Development Finance

The appetite for property development finance in all its guises has increased dramatically in recent years both from the availability of funding and clients looking to build their investment portfolio and materially add value to new and existing assets.

The development finance market has benefited from both new entrants into the market and also established lenders either re-entering or reviewing their development finance criteria. Short-term providers who expanded their proposition to initially include support for refurbishment of property, are now also accepting some development projects.

Both this increased availability of funding and competition in the market have coincided with government initiatives encouraging the conversion of some commercial space (office or retail premises) into residential dwellings under permitted development rights, which has also allowed for some relaxation around residential extensions and improvements.

That said, it remains one of the most complex and confusing funding sectors. The ever-expanding volume of lenders offering a version of development finance, the genuine cost and process benefits of using a professional broker are perhaps more substantial in this sector for that reason.

It isn’t always as simple as quoting the lowest rate or highest gearing, the most appropriate terms for a given project are dependent on a multitude of variables; Client status, project experience both directly and indirectly, capital requirements, proposed debt size, post-works completion values, initial site or property valuation, build type, concentration of units, exact site location, project duration and many other associated risk areas.

With our knowledge and experience, we remain one of the primary brokers in this market, with direct access to over 70 development lenders operating across all areas of mainland UK.

Whether you are a major housebuilder, an experienced developer or looking to finance your first project we have a funding solution available for most projects, large or small.

Loans can be arranged up to 90% of all costs (including purchase, building related and finance costs) in many instances with no requirement for mezzanine finance or equity/profit sharing with the lender. Interest rates available in line with property investment pricing, interest often being rolled into the loan allowing borrowers to make the most of their cashflow during the term of the facility.

Finance options are also available to assist on exit of a development scheme, allowing the developer
to release equity tied up in the development to either put towards a new site or project.

We have direct access to Lenders supporting all transaction types, and whilst one lender may be the most appropriate for development finance, this doesn’t mean the same would apply across all sectors.

Development Funding

Often considered as ground up building projects, actually represents the largest proportion of deal types. Debt available in this category across all project and deal sizes including part-built schemes and projects.

Traditional lenders remain active in this space, albeit their requirements have increased and criteria tightened over the last 10 years. As such new lenders have grown their offering to ensure debt remains accessible to developers of all shapesand sizes. Experience is a big factor in accessing some of the lower rates available however terms are readily available for clients whether this be their first project or they’ve completed 50 schemes previously.

Terms are available for both large phased developments and smaller single asset projects. Many Businesses also building their own commercial premises for occupation, taking advantage of competitive rates (as low as 2% over Base Rate), retaining the asset on completion through a commercial mortgage up to 25 years.

Terms are very much case specific, as will be determined by; the client, their experience, the nature of the project and works entailed, size of the scheme and requested loan and gearing levels. Further scrutiny of build costs and profit margins also determine which lenders are best placed for each enquiry received.

Refurbishment (Light and Heavy)

The largest growth in funding providers has been seen in the Refurbishment sector, traditional development lenders continuing to support clients whilst new entrants have been keen to assist with what are considered light-touch development projects.

We are receiving an increasing volume of enquiries with more clients looking to undertake smaller projects across Residential, Mixed-Use and Commercial assets, either retaining the asset on completion or selling and moving to the next project. More clients are also taking advantage of opportunities to add-value and make their money work harder through refurbishment schemes compared to more historic vanilla investment strategies.

This sector includes a vast array of differing funding criteria and lenders, whose offerings vary greatly subject to client and project specific parameters.

Clients without any previous experience are benefiting from access to debt structured solely against the existing value of a property, funding the works themselves before refinancing against the end value. More complex, labour intensive and Heavy Refurbishment projects structured across multi tranched facilities where elements of the original site are retained.

Conversion

Following the implementation of Government initiatives, and under permitted development, there has been significant increase in the number of commercial assets, whether retail, industrial or more commonly office units being converted to residential, including single units and multiple flats.

Similar to Light or Heavy Refurbishment schemes, the volume of lenders entering this market has grown substantially. In all cases, the lenders will need planning permission to be in place before they are able to complete the facility itself, but funding can be agreed and structured ahead of this to ensure all clients understand what finance is available when planning is forthcoming.

In many cases where planning permission isn’t in place, we are able to source funding to assist with the purchase of the asset to allow clients time to get the right team together to apply for and successfully gain full planning permission.

Terms aren’t simply restricted to change of use to residential schemes, clients applying for change of use from retail to leisure or other alternative commercial space to allow use by their own businesses or letting on higher yields where applicable.

Property Development Finance