What is property development finance? A step-by-step guide

Whether you’re a first-time property developer or a seasoned professional, the question which will decide your success is; ‘How am I going to fund my property development?’. Securing a pipeline of capital is paramount and, whether you’re approaching a bank, building society or niche lender, it can be a complex process if you’ve never done it before. However, you can benefit from the experience of others. Therefore, if it’s your first development, consider surrounding yourself with as many experienced people as possible including your architect and builder.

When it comes to finance, there are a multitude of resources online – such as this guide produced by UK Finance and case studies from developers. However, nothing can substitute getting help and guidance from an experienced mortgage adviser, who can share both their knowledge and network.

We asked the team at largemortgageloans.com for the most common questions they face on a dayto-day basis and they kindly obliged:

I’m considering a property development. Where do I start?

If you’ve already found a site, think about your overall vision and the type of investment you will need to turn that vision into reality. If you are looking for a site, consider the scale of the project you want to take on. Prepare a timeline and, most importantly, look at the figures to ensure the return on your investment is going to make the process worthwhile financially for you and any investors you have on board. Consider if you might be eligible for a Government fund.

Working through all of the above should help you start to build a picture of the amount of funding you will require and the length of time you will need it for.

Should I build a commercial or residential development?

Largely this will depend on the site and its location. You will need to work closely with your local planning authority as they will have zoning in place either restricting or permitting development of certain types of properties.

When it comes to finance, there are lenders who provide specialist commercial property development loans and those who specialise more in residential developments. Therefore, your approach will need to be targeted appropriately. The best way to do so is to speak to a mortgage adviser who has contacts within these finance houses. They should know the lenders inside out and can help you make the introductions.

What’s the application process for property development finance?

It will differ slightly from lender to lender but – just like any business proposition – the finance provider will need to feel secure that their loan is in safe hands. That means they will want to see a detailed package from the developer, clearly outlining the business opportunity. This will include an overview of the site, plans of the proposed development, financial information including comparative quotes from contractors and a detailed timeline.

With property development finance, it’s rare to have all the money released at once. Developers usually receive a tranche of funding at the beginning, and then further portions of funding when the development reaches agreed stages. In order to have that money released, the lender will usually work with a Quantity Surveyor who will visit the development at agreed times to ‘sign off’ the project and confirm that the requirements have been met.

Is property development finance expensive?

The rate you will pay on your lending depends on a number of factors, but development finance is more involved than High Street lending so you will have fees to consider, for example those relating to the involvement of a Quantity Surveyor.

Generally, property development loans allow the interest to be ‘rolled-up’ which means you don’t have to make repayments whilst the build is underway. However, once you see a return on your investment, you will be required to repay all (or some) of the loan and the interest is added on at this stage.

Am I eligible for a bridging loan?

Because property development finance can be complex, we do sometimes advise clients that a bridging loan would be more suitable. Like a property development loan, you don’t pay anything back until an agreed time, at which point you also pay back the interest with the repayment vehicle obviously being the sale of the development itself.

Ensure anyone you work with in arranging or securing a commercial loan is accredited by the National Association of Commercial Finance Brokers – the UK’s flagship trade body for commercial brokers.

I’m a first-time property developer. Will banks consider lending to me?

Yes, they will, but you may face more challenges. Banks need to have some certainty that they will get their money back in the long-term and so you may need to work a little harder for a positive outcome. The right team of people advising you on the financing is invaluable here, so ensure your mortgage adviser has a team of specialists in property development finance, as their help will make a huge difference.

Charles Ayton is Senior Commercial Manager at largemortgageloans.com

EAN Content

Content shared by this account is either news shared free by third parties or sponsored (paid for) content from third parties. Please be advised that links to third party websites are not endorsed by Estate Agent Networking - Please do your own research before committing to any third party business promoted on our website. As an Amazon Associate, I earn from qualifying purchases.

You May Also Enjoy

Breaking News

Housing market’s summer surge dampened by soaring stamp duty costs

Housing market activity has surged, with buyer demand up 11 per cent and agreed sales up eight per cent year-on-year, defying typical summer slowdown National house price inflation has slowed to 1.3 per cent, driven by a 12 per cent increase in homes for sale and higher stamp duty costs for many buyers Higher stamp…
Read More
Rightmove logo
Breaking News

Rents reach another new record as tenants pay £400 more than five years ago

The average advertised rent of homes outside of London has risen to another new record this quarter of £1,365 per calendar month (pcm), but the yearly pace of rent growth continues to slow: London rents also reach a 15th consecutive new record of £2,712 pcm this quarter Five years on from the pandemic, new tenants…
Read More
Breaking News

Six UK vineyards where homebuyers avoid the 84% premium

Six affordable UK vineyards where homebuyers avoid the 84% house price premium and toast a better deal The latest research from Yopa has revealed that living close to one of the UK’s top vineyards will set homebuyers back an average of £494,739, 84% more than the current UK average house price. However, there remain a…
Read More
Breaking News

Red tape slashed to revamp high streets with new cafes and bars

Communities and town centres across the UK are set to benefit from a wave of new cafes, bars, music venues and outdoor dining options, as the Government slashes red tape to breathe new life into the high street. Government to overhaul planning and licensing rules to make it quicker and easier for new cafes, bars…
Read More
Breaking News

London’s prime parks command 86% property premium

The latest research from Jefferies London has found that buyers hoping to live within arm’s reach of one of the capital’s royal parks will need to stump up a serious property price premium, with the average price of property around these green spaces coming in 86% higher than the average London house price. Jefferies London…
Read More
Planning disputes on new build land
Breaking News

Padel Boom Sparks 113% Surge in Planning Applications

17,000 UK Sites Ripe for Development New insight from Searchland reveals that planning applications for padel courts surged by more than 113% in 2024, with the upward trend expected to continue throughout 2025. The explosive growth of the sport in the UK has unlocked a wealth of potential for developers and investors, with Searchland estimating…
Read More