Property development is a key, highly competitive sector of the UK’s real estate industry. Property development can consist of an enormous variety of different projects, from the construction of a single home to an entire estate, the refurbishment of an old office block to the creation of a brand new one. Projects like this can range in size and scope to an almost unlimited degree, and the developers who work on them need to have a large amount of capital on hand to push their projects through to completion.
The demands of property development have led to the creation of an entire specialised lending sector that caters specifically to the needs of these developers. The range of financial products on offer is as dazzlingly varied as the developments themselves, and can range from small loans in the tens of thousands to multi-million pound comprehensive construction packages. As with any financial product a misused loan can become a financial burden, so it’s vital that property developers seek the guidance of a qualified financial advisor before committing to a property development finance solution.
The operation of a property development project may at first glance seem straightforward; a developer buys a plot of land and builds something on it, which they then sell for a profit. Nice and simple, in theory, but the demands of this industry make it easier said than done to take a project from groundbreaking to completion in a timely (and most importantly profitable) way.
Property development finance is the cornerstone of any successful development project because it enables developers to operate free from the burden of capital. Many aspects of property development require “cash on the table”; for instance, buying a plot of land cannot be achieved with a mortgage, because banks refuse to lend on undeveloped land. Similarly, it’s impossible to acquire funding from a bank quickly enough to meet the highly pressured timescales of many property development deals, where agreements need to be cemented in place in just a few days. Property development lenders are specially equipped to meet the demands of this fast-paced business model, and can empower developers to act decisively instead of hamstringing them.
There are various different types of property development finance that cater to different types of development project including property refinance, property purchase and pure property finance. However, these all have some basic DNA in common, and a basic grip of the underpinning characteristics of all property development finance is vital for anyone seeking a loan of this type.
Property development finance has a lot in common with bridging finance, which is another common type of finance used within the property development industry. They’re both types of secured lending, which means the borrower must provide an asset to guarantee the loan; in most cases, this consists of the property that’s being renovated or constructed, but it can be necessary to provide secondary security in the form of other property. Because they’re backed by assets, development loans have no theoretical limit - as long as the asset they’re secured against is worth enough to secure the loan, most development lenders can provide any amount of money. This enables borrowers to fully fund large-scale projects with ease, and it’s even possible to borrow 100% of the construction costs for a building if sufficient secondary security is provided.
In addition to creating a large source of finance, development finance lenders understand the need to work to a tight deadline. Few developers have the luxury of being able to wait while a lender makes a decision, so development financiers have become amongst the fastest lenders in the world; these lenders can turnaround a major development loan faster than some banks approve an unsecured personal loan. While most lenders will be able to operate quickly, they can also kick things into high gear when necessary, so if your project needs to get funding in just a few days it’s usually possible to find a lender that can meet your needs.
This flexibility is another of the key attributes that makes development finance such a specialised industry, and one so well-suited to the needs of its customers. Development finance lenders don’t just work quickly, they’re also able to adapt their loan packages to the needs of each individual client. If a developer needs a longer-than-usual loan term, for instance, in order to finance a lengthy project, a lender can accommodate these requirements. Similarly, if they need to keep operating costs down from month to month, it’s usually possible to roll up the entire cost of a loan until the very end of the term, minimising the burden that this places on the borrower’s bottom line.
Property development is a wide-ranging field with many different sub-sectors. Different finance can be used for different areas, and a few of the most common uses are highlighted below:
It can be necessary to find a new lender while a property is under development. This can be due to the original lender failing to meet requirements, a change in the market or a need for different terms, and with the flexibility of development lenders it’s straightforward to arrange a property refinance package.
The upfront costs of kick-starting a project are high, and a development is at its most vulnerable in the opening stages. Specialist property purchase lenders are able to ensure that a project gets off on the right foot with a stable, secure lending package that covers all the bases.
An all-round funding package, property finance enables developers to cover all the costs involved in development. With options to extend and adapt lending conditions to their specific needs, property developers can use property finance to drive their projects along quickly and confidently.
Property development finance is an essential ingredient in a successful development project, and it’s important for property developers to keep in mind how this specialised sector caters to their financial needs.
Reliable finance is a crucial part of any successful development project, and bridging lenders offer a wide variety of attractive products in this sector.
Barn conversions can result in amazing properties, but require a lot of work. Specialist lenders provide vital financial backing to keep these projects on track
Successful completion of a property development project relies on a strong, stable source of finance from start to finish, which construction finance provides.
Conversions come in all shapes and sizes, and conversion finance lenders provide the flexibility and adaptability that developers need in conversion projects.
Development exit finance enables property developers to react flexibly to changing situations, and to restructure their financial commitments to maximise profits
Inexperienced developers may well have access to lucrative opportunities, and the flexible approach of development lenders enables them to take on projects
Successful property development requires stable funding from the very start, and land acquisition loans are an important element of any construction project
Mezzanine finance is an important ingredient in property development, and it enables developers to take on opportunities they’d otherwise struggle to fund
New-build projects need stable funding from start to finish, and new build development finance lenders provide the tools property developers need in this sector
There’s plenty of work to do before construction starts, and the costs of paving the way for a successful project must be met with pre-construction finance.
Property development requires specialised financial solutions, and the UK’s development finance sector provides a variety of highly flexible funding options
Retail conversions can be lucrative opportunities, but developers must ensure they have appropriate funding to secure planning permissions and carry out work
Refurbishment finance lenders provide the tools that property developers need to quickly seize and escalate renovation projects from beginning to completion
Self-build projects require a specialist touch, and there are many development lenders dedicated to providing self-build finance for precisely this purpose.
Moving quickly is vital for successful property development, and site acquisition finance is an indispensable part of any development finance package.
Unmortgageable property finance allow property developers to take out flexible finance solutions to refurbish and renovate properties for mortgage or resale
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