What is development finance?
The term ‘development finance’ covers a very wide range of property development options and you may be surprised to learn that it can range from light refurbishments involving no more than aesthetic alterations to a single property, to major ‘ground-up’ developments of a barren plot of land, with heavy refurbishments involving extensions or moving internal walls falling in the middle.
Different kinds of finance may be more appropriate to each of these types of development. For example, light refurbishments might be best financed using short-term finance such as auction or bridging finance, as the project will be completed in a short timescale and funds released from sale to repay the loan. Heavy refurbishments or renovations would be best suited to longer-term bridging loans or short-term commercial finance, which would allow enough time for the project to be completed before repayment was required. Finally, finance for major developments would be taken over longer periods, and would often involve staged payments as the development progressed.
Lenders in this field typically look at the predicted value of the property once the development has been completed, as opposed to the traditional residential mortgage which is based upon a property’s current value and the borrower’s financial ability to service the loan. They will also require more detailed paperwork to support the application, so a developer will need to be able to provide:
- A current valuation of the property as it stands, or proposed purchase price
- An evidence-based predicted valuation of the property once the project is completed (Gross Development Value, GDP)
- Anticipated yield of the project
- A schedule of the building and renovation costs comprising the total build cost, including contingency allowances
- Timescales of the works to be completed, including contingency planning
- Evidence of previous experience in similar developments
- Full details of the professional team involved in the development
- Details of the planning permission held (including restrictions)
- Details of building regulations
Here at Turney & Associates, we can help you find the best finance for your project. Whether it is a small, medium or large development, or whether involving new build, conversion or renovation, we will help source the finance to get your development off the ground through to completion.Get in touch to discuss development finance