Specialist

Development Finance For Inexperienced Developers

Development Finance For Inexperienced Developers

Clifton private finance

We specialise in arranging development finance on residential or commercial property transactions in the UK.

If you are looking to source additional finance on a residential or commercial property in the UK we can help.
We are independent and work with a range of UK lenders many of whom are specialist lenders that are not available on the high street. We pride ourselves on providing excellent service responsive to your needs.
Call us on 0203 900 3040 to discuss your requirements.
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Development Finance For Inexperienced Developers

What is Development Finance

Development finance is the money that funds property development. Typically, this will cover new building projects, including new homes, conversions of offices into flats, renovations of existing property on a residential, commercial or mixed basis.

One of the biggest issues for new property developers is accessing money to start their project. This is mainly because the majority of lenders are reluctant to lend to developers without a portfolio or a history of successful developments.

The lenders’ requirement for proven experience in property development may frustrate new developers, fortunately securing property development finance may not be an issue depending on the project.  Through a specialist property finance broker new developers may be able to access funding for their project.

When is Short Term Finance Appropriate

Short term finance provides a fast, alternative route to funding for new developers.

Property developers use short term finance for a variety of projects including:

  • Buying renovation or change of use projects, which are unmortgageable
  • Buying property at auction to redevelop
  • Build to let projects
  • Developing existing properties to sell

If you are a new developer and you require short term finance to assist with your project, it is advisable to contact a specialist property finance broker.

What Short Term Finance Is Available

Bridging Finance

Bridging finance is a type of short term loan that provides additional finance to ‘bridge’ the gap in funding. Unlike traditional lenders, bridging finance providers do not necessarily need evidence of previous property development experience.  There are a number of lenders that will consider providing bridging finance for inexperienced developers on a case by case basis.

Bridging loans can assist new property developers because they:

  • Typically, offer up to 65% of loan to value ratio
  • Can be accessible within a few weeks  depending on your circumstances
  • Have flexible terms of finance, from 1 to 36 months

It is important to note that bridging loans generally have higher interest rates than loans from traditional lenders. However, the majority of lenders help borrowers avoid monthly interest payments by ‘rolling up’ the interest on the loan to pay at the end of the term.

Example: A developer wanted to purchase a £200k property, spend 25k on the development and sell it on for 300k. They had some of their own capital but not enough to cover the purchase and development costs. Unfortunately, as they did not have any property development experience, they could not secure the £225k that they needed from their bank. So they approached a lender and secured 130k and 25K, which equated to 65% of the property’s purchase price and 100% of the building costs. They used the rest of their capital to purchase the property. On completion of the development, the developer sold the property and repaid the loan with the proceeds of the sale.

Joint Ventures

A joint venture is where two or more developers pool their resources to complete a project. Joint ventures are specifically attractive opportunities for inexperienced developers. This is because it allows them to access property development finance and build their portfolio, making it easier for them to secure funding in the future.

The conditions of the finance will vary depending on the lender in the joint venture.Typically, joint ventures may provide:

  • Alternative finance from £150K
  • Finance up to 50% of the Gross Development Value
  • Up to 100% of the building costs
  • Generally up to 24 months term of finance

It must be noted that upon completion of the project, lenders who enter into joint ventures with new developers usually require a percentage of the profit.

New developers can avoid profit sharing but generally this is through their own contribution to the purchase price or development costs. 

Ultimately the percentage of the profit the developer has to pay will depend on the lender.  Therefore, it is advisable to contact a specialist property finance broker to negotiate the best split of the profits.

Example: A developer wanted to purchase a £200k property, spend 25k on the development and sell it on for 400k. They did not have any of their own capital. Unfortunately, as the developer did not have any property development experience, they could not secure the £225K from their bank. So the developer entered into a joint venture with a lender, who provided 200k for the property and 25K for development, which equated to 50% of the Gross Development Value and 100% of the building costs. The developer purchased the property and completed the development with the finance provided by the joint venture. The developer then split the profits of the sale.

How Can An Inexperienced Developer Get Property Development Finance

Arranging development without professional assistance can be a long and drawn out process, with no guarantee of success. This is because almost all lenders are reluctant to lend to inexperienced developers due to the amount of risk involved. When developing a property, organising adequate finance can be lengthy and complex. In the event that development finance is required, it is advisable to contact a specialist property finance broker to ensure that the loan is appropriate, with fair terms and at the best available rates.

Call us today on 0203 900 3040 or complete our callback request form
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