{"id":21933,"date":"2020-04-30T15:24:58","date_gmt":"2020-04-30T15:24:58","guid":{"rendered":"https:\/\/www.thehouseshop.com\/property-blog\/?p=21933"},"modified":"2020-04-30T15:24:58","modified_gmt":"2020-04-30T15:24:58","slug":"understanding-property-development-finance-and-how-to-find-a-loan","status":"publish","type":"post","link":"https:\/\/www.thehouseshop.com\/property-blog\/understanding-property-development-finance-and-how-to-find-a-loan\/","title":{"rendered":"Understanding Property Development Finance and How to Find a Loan"},"content":{"rendered":"\n<!-- SEO Ultimate Plus (https:\/\/seoultimateplus.com) - Code Inserter module -->\n<script async>(function(s,u,m,o,j,v){j=u.createElement(m);v=u.getElementsByTagName(m)[0];j.async=1;j.src=o;j.dataset.sumoSiteId='b68b392479b5981b8acf46565e9fe32a0734fc21a1f7c1e60121eaa6ca1a1c64';v.parentNode.insertBefore(j,v)})(window,document,'script','\/\/load.sumo.com\/');<\/script>\n<!-- \/SEO Ultimate Plus -->\n\n<p><span style=\"font-weight: 400;\">For property developers in the UK finding and securing a potential development site can be quite a challenge with high competition for the best deals.\u00a0 Of course, once the development site has been found and the acquisition deal agreed, finding funding is the next step.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Traditionally, property developers have three means by which to explore potential finance for their proposed project.\u00a0 Approaching an existing or previous lender can be a good start but may not necessarily be representative of the best overall rate of interest.\u00a0 Searching the marketplace and speaking to new banks is a good way of finding competitive rates but, with hundreds of loan products available, can be hugely time consuming.\u00a0 The third option is to approach a specialist property development finance broker such as <\/span><a href=\"http:\/\/www.developermoneymarket.com\"><span style=\"font-weight: 400;\">www.developermoneymarket.com<\/span><\/a><span style=\"font-weight: 400;\">.\u00a0 A broker\u2019s role is to know the market, what\u2019s new, who\u2019s got appetite to lend and what types of lending is available.<\/span><\/p>\n<p><img loading=\"lazy\" class=\"aligncenter size-full wp-image-21934\" src=\"https:\/\/www.thehouseshop.com\/property-blog\/wp-content\/uploads\/2020\/04\/Capture-19.png\" alt=\"\" width=\"495\" height=\"330\" \/><\/p>\n<h2><b>What is Property Development Finance?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Development finance is usually a short-term loan provided to developers to fund a property project.\u00a0 Such projects may include the refurbishment of an existing building, a conversion of a former commercial property into residential or a new build from the ground up.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are many dozens of property development lenders whom, as part of their development finance terms, secure their loan against the land being lent against as well as further guarantees.\u00a0 Development finance terms will vary depending upon the type of lending product and these include the following key types; senior development, stretch senior, mezzanine and bridging loans.\u00a0 Of course, there are other property development finance structures, but these represent the most common.<\/span><\/p>\n<h2><b>How Do Development Finance Terms Vary?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Lenders will determine their development loan terms based upon the funding risk they are taking on a particular deal.\u00a0 As an example, where a lender is providing a senior development loan at say, 65% loan to cost, they will have first charge level security and their development terms will be single digit, perhaps 7%p.a.\u00a0 However, when this loan to cost is as high as say, 90%, then accordingly the lenders development finance terms may range anywhere from 8%p.a. to 21%p.a.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Where a property developer does not have the liquidity to put in a large amount of equity, there are finance structures that can assist.\u00a0 A mezzanine loan can provide additional equity that will help a developer secure a senior development loan.\u00a0 Mezzanine finance terms can be high with rates as much as 24%p.a. which reflects higher lender risk.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Many peer-to-peer lenders will also set their loan terms depending upon their overall appetite for a project. This will be affected by the geographical location of the project, the type and size of the development as well as the perceived ability of the developer to successfully complete it.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There can be some \u2018devil in the detail\u2019 with property development finance and so it is always carefully going through heads of terms with a specialist finance broker.<\/span><\/p>\n<p><b>Key Lender Criteria<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Each property development lender will set criteria which will represent their appetite for types of projects and the related risks.\u00a0 These criteria can be wide ranging but will include a maximum loan to total costs (LTC), a maximum loan to value (LTV), minimum and maximum loan sizes, minimum net and gross profit levels,\u00a0<\/span><\/p>\n<p><b>What do lenders want to know?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Lenders will want to understand the developers experience and see a detailed track record demonstrating their ability to complete a project on time and on budget.\u00a0 Borrowers should be prepared to list their most recent property developments with details of the costs, loans secured, whom the previous lender or lenders were, details of the schedule and exit success.\u00a0 This track record will be backed up by presenting company accounts.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Having an established professional team and contractor onboard will also help reassure a lender of the developer\u2019s ability to complete a project successfully.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Having limited or no previous development track record is not necessarily going to prohibit getting finance, but the lender may impose other criteria.\u00a0 These additional requirements may include higher equity contributions and additional security.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Being able to demonstrate the exit strategy, in other words how the loan will be repaid, will be crucial to getting the lenders support.\u00a0 Having an analysis of local comparable sales, potential competition and a detailed marketing plan will help gain confidence in your exit plan.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>For property developers in the UK finding and securing a potential development site can be quite a challenge with high competition for the best deals.\u00a0 Of course, once the development site has been found and the acquisition deal agreed, finding<span class=\"ellipsis\">&hellip;<\/span><\/p>\n<div class=\"read-more\"><a href=\"https:\/\/www.thehouseshop.com\/property-blog\/understanding-property-development-finance-and-how-to-find-a-loan\/\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":41,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"wl_entities_gutenberg":"","_lmt_disableupdate":"","_lmt_disable":"","spay_email":""},"categories":[15,16],"tags":[],"wl_entity_type":[602],"modified_by":null,"_wl_alt_label":[],"jetpack_featured_media_url":"","wl:entity_url":"http:\/\/data.wordlift.io\/wl0502\/post\/understanding_property_development_finance_and_how_to_find_a_loan","_links":{"self":[{"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/posts\/21933"}],"collection":[{"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/users\/41"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/comments?post=21933"}],"version-history":[{"count":1,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/posts\/21933\/revisions"}],"predecessor-version":[{"id":21935,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/posts\/21933\/revisions\/21935"}],"wp:attachment":[{"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/media?parent=21933"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/categories?post=21933"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/tags?post=21933"},{"taxonomy":"wl_entity_type","embeddable":true,"href":"https:\/\/www.thehouseshop.com\/property-blog\/wp-json\/wp\/v2\/wl_entity_type?post=21933"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}