Development finance
Development Finance
Development finance is used s to fund development projects such as new build constructions and property conversions. To gain a deeper understanding of this topic, read our comprehensive guide on development finance, or contact us if you need any assistance.
The development of property is essential to economic growth and can be a cornerstone for long-term prosperity. From housing developments to infrastructure improvements, development finance helps fund projects that bring about meaningful change for local communities and their people.
What is Development Finance
Development finance is a term that describes finance, such as loans and grants, used to aid property development.
Both public and private property developments have the potential to create jobs, stimulate growth, increase access to markets and resources, reduce poverty, and improve living standards.
Development can take many forms, including building new blocks of flats, the development of a single property into a larger dwelling, or the creating of a new housing estate.
The Role of Development Finance
Development finance plays an essential role in providing the funding needed to for developments. In turn, these promote economic growth and helping to bring about long-term change for local communities.
Development finance can also provide access to capital for small businesses and entrepreneurs that may need rfunding for smaller projects.
Through development finance, these people can fund their own projects and help develop their local economy.
Who offers development finance?
The first step in accessing development finance is understanding the different sources available. For example, development finance is available for small and medium housebuilders through the Government via The Levelling Up Homebuilders Fund. the Fund supports smaller housebuilders that struggle to access finance through traditional bank lenders, with loans starting from £250,000.
There are a range of lenders in the market who offer development finance. This includes some of the high street banks as well as some specialist lenders. If you have approached your own business bank and been rejected for development finance, a mortgage broker who specialises in development finance will be able to assist you in finding alternative lenders. This is because high-street banks often have more restrictive criteria than specialist development lenders.
Private investors and businesses may also offer financing for development projects or businesses in exchange for equity stakes.
Once a source of finance has been identified, the next step is to ensure that the project meets all regulatory requirements for approval. This includes demonstrating that the project will be financially viable and environmentally sustainable. The lender will expect to see the full plans for the proposed development.
How Does Development Finance Work?
For this section, we are concentrating on development finance for private property investors. Typically, an investor will look to hold a limited company as the business vehicle for the development. If the development is for a house for the developer to live in, this would usually be in the developer’s own name but would then be usually referred to as a ‘self-build’.
A. The project:
Before a lender will consider financing a development, they will need to understand everything about the project. This includes the acquisition cost, for example, the cost of the land to be built on, and there is planning permission for the build. What will actually be built, and how much will it cost? And finally, what will be the market value of the completed property? The end value is referred to as the ‘Gross Development Value’ or GDV for short.
B. Funding stages:
With traditional mortgages, funding is released in full at the time of purchase. With a development loan, the funding is released in stages as the development progresses. The developer will be expected to have some money of their own to either purchase the land, or start the first phase of development. Funds will then be released as each phase of the development is complete.
C. Exiting the development loan:
Development finance is usually a short-term loan to cover just the building phase of the project. Once the build is complete, the development finance is normally repaid by the sale of the property, or refinancing the loan to a longer-term mortgage. If the planned exit is the sale of the property, but the developer would like access to the equity that has been created, this is possible using a development exit bridge loan.
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Benefits of Development Finance
Development finance offers several key benefits for developers. Firstly, it provides a straightforward way to secure the funds necessary for purchasing land or property and carrying out work. The loan is released in stages as each stage of the work is completed, meaning that developers can ensure they have enough capital to take on larger projects without overstretching their budget.
The loan can also be tailored to the individual needs of the developer, allowing them to manage their cash flow more effectively by only releasing funds when necessary.
Furthermore, development finance often has a more flexible approach than traditional forms of borrowing, meaning that developers can access capital even if they cannot meet strict requirements set by banks and other lenders.
This can make it easier for developers to access the funds they need to bring their projects to fruition. Development finance can provide the necessary capital to complete tasks more quickly and with greater financial security.
Development finance may be the perfect solution if you are looking for a financing solution specifically for your project’s needs. With the ability to access capital quickly and tailored loan terms, you can ensure that your project is completed on time and within budget.
Development Finance Lenders
Our development finance lenders provide long-term, short-term, and bridging loans to support the development of residential, commercial or mixed-use projects. Our expert advisers can help you find the most suitable lender for your project, from small residential redevelopments to large-scale builds.
We have access to a wide range of lenders, including banks, specialist funds and independent lenders. Our lenders can provide the most suitable development loan based on your project’s requirements, and our expert advisers will help you source the right funding for your requirements.
Our advisor team also provides advice and assistance with structuring your deal and guidance on the various tax implications that may apply. With Synergy Financial, finding the right finance for your project couldn’t be easier.
We will help you to find a lender that meets your needs and provide all the support you need throughout the process. Get in touch today to discover how we can help you with development finance
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Not only do we offer a wide range of products to cover your project’s needs, but the team at Synergy Financial also provide invaluable advice and assistance through every stage of your development finance journey.
The difference between development finance and other investment finance products
For certain projects other finance, such as buy-to-let mortgages or standard bridge loans may be a better solution for your needs.
For example, if you are buying a ready built property that you just want to renovate to make it more attractive, a buy-to-let mortgage may be more suitable. This will depend on the level of work planned and if the property in its current condition could still be let out. For example, the property could be let out in its current condition. However you plan to add a new kitchen, bathroom and decorate throughout which will take you less than a couple of months. In this scenario then a buy-to let mortgage is likely to still be suitable. Buy-to-let loans are cheaper than development loans, and because they are already longer term loans, there is no need to refinance once the work is complete.
If you plan to develop an existing ready build property, but it could not be classed as lettable in its present condition due to the level of work needed, you could consider a bridge loan. Bridge lenders are happy to lend on existing properties being developed, such as extensions or conversions. As long as the property is kept water tight and does not require planning permission, then a bridge lender maybe a suitable solution. Bridge loans are not cheaper than development loans, but are more straight forward and quicker to arrange.
Where a development project is a build from the ground up, then development finance will always be required. Also projects requiring planning permission or where an existing property will not remain water tight are best served by development finance.
Working with a specialist mortgage broker such as Synergy Financial can help you secure the right finance for your project. Our team of experts are well-versed in the complexities of sourcing funds for property developers, so we can provide valuable advice on how to get a suitable deal from lenders. We will help you identify appropriate lenders, negotiate the ideal rates for your development project and ensure that all paperwork is completed promptly.
We understand that each development finance transaction has unique criteria, and our team is dedicated to finding the most suitable lender for every borrower. We take an individual approach to each client’s situation, ensuring that you are fully supported throughout the process. By taking advantage of our experience and knowledge in this area, we can help you get the development finance you need for your project.
Final thought
Development finance is an increasingly important and complex area of lending. By working with the right mortgage broker, such as Synergy Financial, borrowers can ensure they get a suitable deal when sourcing funds for their project.
Our team of experts are well-versed in the complexities of this sector, so you can rest assured that you will receive the right advice and support throughout your development journey. So, if you are looking for a reliable mortgage broker to help you with your project, look no further than Synergy Financial.
Contact us today, and let us show you how we can help you get the development finance you need.
FAQs: Development Finance
Most frequent questions and answers about Development Finance
To get finance for property development, you can research the market and approach lenders directly. However, working with a reliable development mortgage broker such as Synergy Financial, will give you access to advice on a greater number of potential solutions to help you find the most suitable lender for your project. Connects team of experts are knowledgeable in this sector and will provide expert advice and support throughout the entire process.
You will not always need development finance to renovate a property that is already built. Depending on the level of work and if the property is in an existing lettable condition, a buy-to-let or bridge loan may be more suitable.
Developers will need some initial funds to acquire the asset or start the first stage of development. Development funding can then be raised to fund each of the phases of the development until it is complete. The property can then be sold to repay the development loan, or refinanced to a term loan such as a buy-to-let.
When providing development finance, lenders will typically require a detailed business plan to assess the project’s viability and evidence of the developer’s financial and experience credentials. They will want to understand the cost of the works and what the end value (GDV) of the project will be. Development finance lenders will normally expect an applicant to have experience with developments or be working with a professional with experience.
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