Development Finance

Applicants ideally need to be able to confirm they have past experience in undertaking developments of the size that they are seeking funding on. i.e. they have bought either land or buildings in the past, developed the site and then exited the development finance successfully either via sale or conversion to longer term senior debt .

We do have lenders that will look at a well constructed proposition and will work with you even if you have not done a development in your own name in the past eg. where there is a strong build team in the background/strong financial profile/guaranteed exit from development etc..

Some property development lenders will let you borrow up to 100% of the overall cost of a project, including land and building costs.

Were you aware that property development funding can be arranged on an interest only basis? The interest on the debt can be “rolled up”, meaning it isn’t payable until the end of the loan term, when you sell, or re-finance though please be aware that this will increase the overall cost of the borrowing.

Property development funding is available for:

• Owner-occupier and investment developments
• Commercial projects
• Restructuring existing arrangements
• Pre-let, pre-sold or speculative developments
• Property Trading (Acquisition, refurbishment and onward sale).
• Investment Portfolios

Criteria Guide

• Loan Size: £30,000 – £5 million
• Term typically up to 12 months*
• Loans towards land purchase or repayment of existing available depending on project.
• 100% of build costs
• In general overall lending not to exceed up to 65% of the end value, including interest roll up.
• Lender’s surveyor will normally be appointed to monitor work done, costs and timetable.
• Stage payments are usually released on monthly certification in arrears.
• Sites to have detailed planning in place before purchase of land and drawdown of build costs loan.

*Longer terms may be available to suit project timescales

Information Required

• Outline Development Appraisal stating what is being built, where and final outcome. i.e. Sale or retain for rental.
• Costings summary to include a contingency and an estimate of end values.
• Copy of planning permission and plans.
• Assets and Liabilities Schedule of the applicants/directors
• CV from all applicants stating their past development experience.
• Details of build team eg Architects, Construction etc

The main difference between a self build mortgage and a house purchase mortgage is that with a self build mortgage money is released in stages as the build progresses rather than as a single amount.

Every self build project has identifiable stages from the initial digging of the foundations to the final fix and at each stage the value of the build increases.  The following chart shows the typical stages in a traditional brick and block construction and in a timber frame construction.

There are two types of self build mortgage each defined by when you get money during the build.  They are called advance and arrears and each are described below.

The traditional type of self build mortgage is on an ‘arrears’ basis.  With this type, the lender will release money to buy the plot, usually between 50% to 85% of the purchase price or value of the land and then will release the money for the build in stages to correspond with the build stages outlined above.   The money for each stage is paid out at the end of the stage once the work has been completed and a valuer has visited the site i.e. in arrears of the work being done.

An arrears self build mortgage is best suited to self builders who have sufficient savings to fund the early stages of the build as well as sufficient savings for the deposit on the land.  For example, if you already own the plot of land and can remortgage it to provide the funds to start the build or if you have already sold your existing house and have cash available to buy the land and start the build then an arrears mortgage may be the best option for you.

We recognise that not every self builder has access to the cash required to pay the deposit on the land and the first build stages so we can access an alternative – the Accelerator mortgage.  Here money is released for each stage of the build at the beginning rather than the end of the stage giving you the cash you need to buy materials and pay your builder.  It also lends a generous percentage of the costs – up to 90% of the cost of the land and up to 90% of the cost of the build.

Accelerator is ideal for many situations, for example if you have only a small amount of cash available and don’t want to sell your existing house to release equity before your new one is complete or if you want to keep the cash you have available until later in the project to maintain a good contingency fund.

Simple Commercial Finance has access to all the types of self build mortgage, both advance and arrears.  So to make sure you get the best advice give us a call today to discuss your specific requirements and we can help you choose the most suitable way of financing your dream home.

Interested?