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The answer is yes! With the ever-increasing need for housing in the UK, as well as the rising cost of trade materials, the need for loans to fund these developments is critical for property developers right now.
Whether you are looking at constructing a project of new-build properties on a plot of land, or intend on converting a commercial unit into a block of flats; we have access to a panel of over 40 property development finance lenders that can assist with these projects.
How do short-term loans for property development work?
In practice, our panel of property development finance lenders will be able to provide loans towards the purchase price of the land/property (if it is a purchase), and then 100% of the cost of works of construction to complete the desired project.
The funding for the works is split into stage payments which are agreed upon with the client during the application process, e.g. the cost of works is £500,000 which will be provided in 8-stage payments of £62,500.
As each stage of the build/conversion is completed, the next payment will be released to complete that set of works until all pre-agreed stages are complete and the project is finished. The short-term development loan will then be repaid upon the sale or refinance of the asset, depending on the client’s strategy.
However, it is not quite as simple as that and there are many things to consider when it comes to property development finance. Each lender has their own approach to this type of lending which can vary between:
• The way the project/property is valued.
• How the works get funded.
• The costs associated with the funds being released.
• The way the interest is charged on the loan being provided.
Some lenders will value a property based on there being a restricted marketing period of 180 days, which can have an effect on the figure provided; as opposed to using the open market value.
Furthermore, some lenders may also charge interest on the whole facility being provided from day one, even if the staged payments for the works haven’t been released yet. Ideally, you would want a lender who will only charge interest on the funds that have actually been released to the borrower for their use.
Another thing to consider is how much the lender will be willing to provide to support the project. We have access to property development finance lenders who can provide a total facility of up to 75% loan to gross development value (LTGDV), or in some cases up to 95% loan to cost (LTC) of the whole project. To put this into perspective, you will still need to put down a minimum of 25% deposit on day one, but this amount in comparison to the total purchase price and build cost could equate to only 5% on certain projects.
The main focus for some clients is to be able to raise as much money as they can to go towards the project, even if it means paying a slightly higher level of interest. Then there are others who have a larger sum available to put down as a deposit so that they can benefit from the cheapest rate on the market.
This all highlights just how important the need for a property finance adviser is to best place your property development project deals.
How can Advocate Finance help you?
Are you an experienced developer looking to finance your various projects that are lined up for 2023?
Have you built up and retained a strong BTL portfolio and now want to explore a new approach to property investment?
Or is this just your first venture into the refurbishment/development market?
Here at Advocate Finance, we are experts in arranging short-term loans for property developments and could find the right solution to suit your individual needs.
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