Mortgages For Property Development
Fox Davidson are the leading development finance broker in Bristol, securing mortgages for property developers. We fund all property asset classes (residential and commercial) in the UK. Property development finance is available from £100,000 and typically up to £100 million.
Using JV partners, we can fund up to 100% of all costs including purchase, build and professional fees.
How Does Development Finance Work?
Development finance works by the lender providing money to purchase the property and the money to complete the building work.
Most development finance lenders will offer an initial loan based on the purchase price. The lender will subsequently fund 100% of the cost of works. This ensures that the works are completed, and the development is finished and ready to be sold or refinanced.
Development Finance Options
There are many development finance options. The development finance options available to a developer will depend on the works involved.
Funding is available for small refurbishments through to multiple unit new build sites. The types of development finance include light refurbishment, heavy refurbishment and new build or conversion development finance.
The type of development finance you will need will depend on the extent of the works you intend to carry out.
Light & Heavy Refurbishment Finance
Renovation projects typically fall into 2 categories:
- Light Refurbishment – Decoration, new bathroom & kitchen. Short term loan up to 6 months. No planning needed.
- Heavy Refurbishment – Works that require planning e.g. Adding bedrooms, property extensions. Loan term up to 18 months.
The mortgage lender will be looking to take the 1st charge on the property. For light refurbishment, the applicant should have some experience of owning property but not necessarily have completed a refurbishment previously.
Heavy refurbishment projects will require that the applicant has experience of completing previous projects. The lender may also insist that a building contractor is used to carry out the works
New Build Property Development Finance.
New build developments from the ground up can be funded using senior debt and mezzanine finance. Up to 90% of total costs is possible.
The applicant will need to be an experienced developer working with an established design and build team.
What Paperwork Do I Need To Get Development Finance?
The paperwork required for development finance is considerably more than a normal residential mortgage. Lenders will carry out a lot of due diligence on the borrower, the site and the contractors carrying out the work.
Typically, lenders will require the following supporting documents:
- Application Form
- CV’s detailing development experience of the applicant
- 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.
The Hidden Costs of Development Finance
Do not be fooled by the rate of interest you are offered. Some lenders like to put attractive rates out there to lure in developers but be aware of hidden costs.
Let’s highlight the costs you need to be aware of, they are:
Is this a fixed rate, is the interest compounded, both important factors and will distort the rate you are really paying. Another consideration is the treatment of interest on the funds you have not yet drawn. Some lenders will charge interest on the funds you have not yet had to access.
Lenders arrangement fee?
Is this added to the loan and therefore interest bearing and is it based on the loan amount or the GDV?
Lenders exit fee
The lenders exit fee will either be based on the loan amount or the GDV. The cost to you as a developer is massive. A recent example we had was a client borrowing £2.3m with a GDV of £5.5m. We had lenders wishing to charge everything from 1% of the loan amount through to 1.5% of the GDV. That is £23,000 in the best case and £82,500 in the worst case.
In almost all instances you will have to pay the banks legal costs as well as your own. Get an outline of these costs upfront or don’t be surprised if you are hit with a large legal bill to cover both sets of solicitor’s fees.
The same is to be said for valuation fees, these include; the initial valuation, the development appraisal and ongoing monitoring fees. Some lenders will offer these at cost, others will inflate the figures.
Can Anyone Be A Property Developer?
Anyone that purchases property and improves it to make a profit is considered a property developer. You do not need any professional qualifications to be a property developer.
What you should have though is an understanding of the property market, of building and you should have an experienced team around you.
Many development finance lenders will not lend to new developers.
How Do You Get Property Development Experience?
A good place to start would be to purchase a property that needs light refurbishment before moving on to the next project. Each subsequent project can increase the amount of works required. This is how many of the developers now building new build houses first started out.
How much money you need to be a property developer depends on the property value and cost of works. Typically, lenders will lend up to 70% of the property value and 100% of the works for light and heavy refurbishments. For experienced developers developing several new units we can fund up to 90% of total costs including professional fees.
Property Development Loan Calculator
Calculating how much property development finance will cost has many variable factors, some of which we have covered off earlier (lenders fee, added or deducted, interest is it compounded? etc).
We could produce a development finance calculator but given the many variables it is best we identify a lender and then complete accurate calculations for you.
The Best Development Finance Tips
We provide developers with lots of advice throughout the process but here are some of the best development finance tips.
- Get your paperwork in order, planning, CV of previous developments, assets and liabilities statement, build costs and timescales. A well-presented development finance proposal receives a better reception from the lenders. Fox Davidson produce all of this for our clients.
- Interest will be rolled up and deducted from total advance, as will the lenders fees, make sure you know the NET amount you need to borrow to allow you to purchase and build out.
- Mortgages for property developers take time to be underwritten due to the extra information. Get your funding agreed as soon as possible into the process. We can provide development finance appraisals for prospective development sites.
- Always factor in contingency funding of 5% to 10%. With increasing build costs due to shortage of labour and cost of materials contingency funding is essential.
- Know your exit. With a softening market you may not sell all your units before the development funding expires. Development exit finance allows you to secure cheaper funding and extends the sales period. Don’t put yourself under pressure to sell at discounted prices.
Development Finance Questions
Can you get a mortgage for land?
Mortgage lenders will lend on land. In most case the land must have planning. There are some lenders that will lend to experienced property developers on land that does not yet have planning.
Can you borrow funds to pay the CIL?
The community infrastructure levy (CIL) is classed as a professional fee. You may borrow funds to pay the CIL. You can also borrow funds for professional fees such as architects and legal costs.
What are the best development finance rates?
Development finance rates vary depending on the loan to value, developers experience and loan size. As of November 2018, rates start at 4% and up to around 15% for mezzanine second charge development finance.
How much deposit do I need for property development finance?
Typically, lenders will require a deposit of 20% of all costs. It is possible to secure 100% development finance using JV equity partners or using additional security.
What is the maximum loan to value for development finance?
Typically, the maximum loan to value is 80% of costs subject to 65% of gross development value. Some lenders will lend at higher loan to values on a case by cases basis.
What is the longest time I can have development finance?
Some lenders will lend for up to 36 months. If you are reaching the end of the term then we can put in place development exit finance.
Do I Need A Broker To Get Development Finance?
Using a broker to get development finance will ensure you get the best possible development finance terms. A good broker will complete a comprehensive development finance proposal that contains all the information a lender needs to be able to decide to lend.
The key to a good development finance proposal is to provide a well-researched, informative lending proposal containing accurate facts and figures.
Fox Davidson produce development finance proposals that will look at:
The Site – Does it have planning, what are the transport links, what is the market demand for the proposed build.
Developers Experience – Is this your first development, if so there is more emphasis on the contractors. If the developer is experienced, we will showcase their previous developments.
Contractors & Professionals – Who will build the site, are they experienced at delivering the proposed scheme, are their financials in order. Who will manage the project, who are the design team, which solicitors are being instructed?
Having an experienced team of contractors and professionals working with you is paramount to a development being delivered on time and within the budgeted costs.
The Financials – What cash is being put in by the developer, where has that come from. What assets do they have, are there existing sites waiting to be sold, what personal guarantees do they already have on existing sites? What are the build costs, are these accurate, what are the expected sales prices, are these backed up by estate agents’ valuations?
Lets Get Started!
In 4 simple steps we will quote you the best development finance terms from across the whole of the UK lenders.
- Call or email Fox Davidson with the site address, purchase price, cost of works and the deposit you have.
- We will complete a short questionnaire to confirm your experience and gather some information on your assets/liabilities.
- A proposal is made to the applicable lenders.
- Terms are offered in principle usually within 48 to 72 hours.
If you are looking for development finance in Bristol You can use the enquiry form below and we will usually respond within hours but never more than 1 working day.