Since the end of 2020 we’ve been seeing a noticeable increase in the amount of enquiries we get from clients asking about the types of development finance they may be able to access from our panel of development finance lenders.
This appears to be in response to the explosion in popularity of property development across the UK, with demand having increased hugely in the Private Rental Sector (PRS). Many landlords and investors are now seeing the potential and success in the UK property market and have decided to either take on opportunities or grow their presence in the market.
This has also meant that finance companies are now becoming much more diverse in the types of loans they’re offering and the types of development finance they’re providing to their clients. Here we’ve put together a quick breakdown of the most popular types of property finance for you so that you have some more detail.
Residential development finance
This is more or less self explanatory in that this is finance designed for developers who are either building, renovating or converting property that’s intended to be used for residential use.
Many of our clients who are developing residential property are either building from scratch on land they’ve purchased, converting an existing property into smaller flats or maisonettes, or renovating a property that is in a poor state of repair back to an inhabitable state.
The type of development will also depend on the term and length that you’re looking for. As an example, if you have land but want to build a number of residential properties, you may opt to take out bridging development finance that will cover the cost of materials, an architect and builders before selling the properties on, or you may opt to keep the properties to rent and then arrange a mortgage for after the completion of the project.
Similarly, clients who are converting an existing building into smaller living spaces may look to take out shorter term bridging development finance before selling or then arranging a mortgage later down the line.
Commercial development finance
Commercial development finance, again, could be considered fairly self explanatory in that this is development finance designed to construct, convert or renovate property that’s intended for commercial or business use.
It could also be considered commercial development finance if you’re applying for funding as a business, as this wouldn’t be covered as consumer finance and also wouldn’t likely be covered by FCA regulations.
Many of our clients use these finance types similar to residential development finance in that they will acquire shorter term finance to develop their project before completing it and then arranging longer term finance such as a mortgage.
Second charge development finance
Second charge finance is slightly more specialist as it means that the property you’re using as security against your loan isn’t fully paid off, or there’s still an outstanding debt on it, such as a mortgage.
We have a panel of lenders that are keen and willing to lend on this basis, but there are often other criteria they’d like you to meet. For example, if you’re developing properties they often like to see that you’re experienced and have a record of success from previous projects to give them confidence that you’ll finish on time and that your project will be completed in order to repay your loan as agreed.
Development finance calculator
We’ve included a handy calculator for you to play with to see how much you may qualify for in a loan, and what it may cost you. It’s designed to give you an illustrative example, however, if you’d like to discuss this in more detail then we have an experienced and friendly team happy to talk things over with you.
With our calculator you can change the measures to dictate the amount of the loan, the interest, the term and the deposit you have.
Various types of property development funding
Although we’ve highlighted and illustrated some of our most popular types of development finance here, it’s important to understand that there’s are lots of different forms of funding you can get for property development, and which is suited to you will very much depend on the type of project you’re working on.
The best advice is to speak to one of our brokers or agents to get more details and go into more detail about you and your project.
Development finance examples
As an illustrative example, a client purchases a property for £100,000 but it isn’t in an inhabitable state, and with renovation works should quickly be able to be sold on for £175,000.
Our client takes out a bridging development loan for £25,000 in order to carry out these works and anticipates that this will take 2 months to complete.
Development finance rates
As with any type of finance or loan, this will very much depend on your situation, your credit history, your experience and the type of development you’re trying to build.
Having said that, development finance will typically be anywhere from 0.5% to 1.5% per month.
Speak to one of our development finance brokers
We’ve spent years putting together a team of highly experienced and highly skilled brokers and advisors.
They know what our clients need in order to get approved for this type of finance and can offer you some of the best advice on the market.
We also have a panel of lenders that we’ve spent years cultivating and building relationships with. They’re able to offer our clients exclusive rates and terms on development finance and other types of lending.
We’ll be able to talk you through every single step of the process and ensure that your application is dealt with as swiftly as possible so that you can get on with what you do best, developing property and running your business.