Looking To Fund A Property Development Project?
Are you a property developer with an exciting new project in the pipeline? Stuck on how to finance it? There are many different options available; here we share with you a recent scenario we were faced with.
We were contacted by a property developer who had a query regarding the financing of a project...
"I’m an experienced property developer; with my previous projects I have either self financed the development or sought a low level of borrowing from my existing bank. I’m interested to find out if there are other funding options available to me?"
Yes! There are alternative options available that you would not be able to find on the high street. While high street banks do have an appetite for development finance they only tend to offer a low loan to value, for example 50% of gross development value (GDV) and 75% of build costs.
At KDW Commercial we have excellent long standing relationships with a wide range of specialist development lenders. This means we are able to source the entire market to find the most competitive terms for your development finance.
There are various finance options available to suit different projects. The most common product that we deal with is development finance.
Development Finance is best suited to extensive projects and ground-up developments. It can be used to cover the cost of purchasing land and the building costs involved. The lender will finance a percentage of the plot purchase and a percentage of the build.
How much can be lent?
In the majority of cases 65% is realistic of the GDV which a specialist development lender will lend but in some cases this can go up to 70%.
This will provide you with the funds for 65% of day one purchases and up to 100% of build costs. This includes interest which is rolled up to ease cash flow.
What are the estimated costs for the development finance?
There are three main areas which will affect the costs these are margins, arrangement fees and the exit fee:
Margins will range from 6% - 12%. This is dependent on the location of your development and the level of funding you require.
An exit fee is charged by the lender and is typically against the gross facility amount (but in some cases GDV) the fee is traditionally 1%-1.5%.
The arrangement fee of 1.5%-2% is charged by the lender and will be calculated using the gross facility amount.
You will also need to consider additional costs that your project will incur such as valuations, project monitoring and solicitors fees.
What are the timescales for development finance?
This will depend on a number of factors including the complexity of the project, the location and solicitor’s enquiries but typically it should be 6-8 weeks from the agreement in principle to the funds being paid into your bank.
What information will I need to provide?
To make an application for development finance we would require the following documents:
- Outline of the proposed development project
- Evidence of planning consent if applicable
- Indicative schedule of works
- Purchase price and GDVSummary of previous experience
Are there any alternative products to fund my development projects?
There are two other products that we would recommend which are:
Refurbishment Bridging – this product funds between 3-24 months of building costs and will sometimes have the option to convert to a mortgage later on. This type of finance will cover the majority of light and heavy refurbishments.
Bridging for planning – this product allows you to buy a plot of land with the plans for the property in place and then flip to development finance.
What are the next steps?
If you are interested in finding out more about the funding options for your development then a Commercial Adviser at KDW will be able to discuss the above in greater detail. Once you have identified a potential project we will work with you to collate the required information.
Our industry knowledge and expertise allows us to engage with the most suitable lenders and source indicative heads of terms.
Contact us:
Tel: 01727 85 22 99
Email: help@kdwcommercial.co.uk