A Guide to Development Finance for New Developers.
Fox Davidson are NACFB accredited development finance brokers. We secure development finance for new developers wishing to break into property development.
As independent development finance brokers, we secure development finance for new developers from the whole of the market and have exclusive access to some lenders which sets us apart from other brokerages.
We have built solid local relationships with the key decision makers at the various development lenders including high street banks, private banks and the many privately funded development lenders.
Fox Davidson secure preferential terms for clients wishing to fund their first development.
What Kind of Developments Can We Secure Funding For?
- Ground up new build residential houses and flat
- Ground up commercial property
- Refurbishments including light refurbishments (new bathroom & Kitchen) to heavy refurbishments undertaking structural changes and alterations that need planning.
- Refurbishment to Let (a hybrid product allowing you to refurbish with a bridging development loan and then exit on to Buy to Let product).
All of the above scenarios and development products are available to new developers with little or NO experience.
What are the Terms for Development Finance for New Developers?
We deal with many, many lenders and they all have different terms, from loan to value, loan to cost of works and loan to gross development value to their rates and their fees. Here we have summarised the general terms for ground up development finance for new developers:
- Maximum Loan to Cost (LTC) 80%
- Maximum Loan to gross development cost (LTGDV) 75%
- Interest Rate – Dependent on loan to value, the loan size and experience (if any)
- Fees – Valuation, Monitoring Surveyor/QS fees, solicitor’s costs, stamp duty
- Lenders Arrangement fee of 1 to 2%
- Interest may be rolled up into the total gross loan which means you do not have to pay the interest each month.
Using A Commercial Mortgage Broker.
The objective of using a broker is to put someone in between yourself and the lender that knows how to present the case to the right lender, first time. In doing so you will get the best possible terms (negotiated by the broker) and will secure the lending you require.
A quality development finance broker will work through your lending requirements and will ensure you have all the necessary paperwork together to make an application. Paperwork you will need includes:
- CV’s detailing development experience of the applicant (if any)
- Asset & liability / income & expenditure statement
- Annual accounts/tax returns – if the borrower is a going concern
- Valuations and QS reports
- Summary of proposed scheme including location, current and proposed site use
- Development appraisal including detailed costings and proposed specification/finish
- Project timeline/cash-flow forecast (allowing for prelims, construction and realistic sales window)
- Copy of planning consent and plans including accommodation schedule
- Comparables for sale and rent from a local agent
- Proposed team including contractor, QS, architect etc – To include CV’s and financial accounts for these where appropriate, demonstrating ability to deliver the project.
Fox Davidson will work with you to ensure the paperwork is complete and sufficient for an application.
Light & Heavy Refurbishment Finance for New Developers
If you are not building from the ground up but require development finance for a refurbishment, such as an auction property that needs work before you sell it or rent it out then the lending situation is completely different.
There are 2 types of refurbishment:
- Light = Non-Structural. A new Kitchen & bathroom is a good example of a light refurbishment.
- Heavy – Planning permission required. Perhaps a single unit being converted to a multi-unit or vice versa.
Terms for refurbishment Finance:
- Loan to value typically 70 – 75%
- Rates around 0.5% to 0.9% per month
- Fees from 1.5%
- Interest rolled up into the loan if required
The paperwork for a refurbishment is much less demanding. Lenders will typically require:
- History of previous refurbishment projects (if any)
- Schedule of works and costs
- Details of contractors
- Planned Exit (sale or refinance)
If you are a property developer or builder with little or no experience and wish to discuss your options for a development or refurbishment please email or call and ask to speak to one of the NACFB approved commercial mortgage brokers at Fox Davidson.
You may also find our guide to development finance useful.