Development Finance for Property Developers, Investors & Contractors

Development finance for property developers

Property development finance for developers and contractors.

Investment Property Partners is a leading independent property investment specialist advising clients throughout the UK and internationally. In addition to our property investment services we offer a range of complimentary development finance, insurance and investor solutions created to support real estate developers, investors and contractors at all stages of the development process.

Development Finance

When it comes to property development finance for either commercial or residential projects, you will find that there aren’t set interest rates like there are for other more conventional property loans and mortgages.

For the financial products created for property development projects, loan to value amounts and interest rates will generally be set based on several project specific risk factors.

These risk factors will typically include the developers’ previous experience of successfully completing similar property development projects, the current planning status of the site (no permission, outline or full planning permission), the availability of development plans and construction specifications, well-structured financial projections, and the total deposit that the developer is able to put down.

Traditional forms of property development finance will normally be dealt with on an interest only basis and the term of the loan will depend on the risks involved, the track-record og the development team, the complexity and size of the development project in question.

Interested in Property Development Funding?

If you’d like to learn more about our property development finance and property investment capabilities and how we can help you, if you’d like to receive information about investment properties for sale, including the latest new developments and off-market investment opportunities, or if you’d like to discuss your requirements in more detail please contact us today:

Development Finance & Project Suitability

Property development finance can be used for a wide range of projects including:

  • Commercial development

  • Residential development

  • Green & brown field development

  • Land purchase

  • New build projects

  • Property conversions

  • Property refurbishment & renovation

Property Development Finance & Deposits

Property developers also need to understand about deposits, and how much is likely to be required as part of the finance agreement.

Levels of deposits tend to vary but will generally be between thirty five to fifty per cent of the purchase price of the property or development land.

The cost of the build itself will also be taken into account.

Even though nine times out of ten a deposit will be needed, there are a few situations where you may be able to lower the amount you need to put down.

Instances include if full or even outline planning permission for the development has already been granted which will increase the value of the development site, and where the land to be built upon is already owned by the developer.

Alternative Forms of Development Finance

A number of alternative financial products are also suitable for property development projects and these include:

  • Senior debt finance

  • Mezzanine finance

  • Joint venture finance

These funding alternatives are generally only suitable for larger, well-structured development projects that will be managed by an experienced development team, and that can be presented as a complete package.

Senior Debt Finance

Senior debt finance is usually structured to cover the first seventy to eighty percent of the project loan to value, but can, with agreement be geared against the gross project value if required.

Fees associated with senior debt products include arrangement fees, monthly interest (two to four percent above bank) and exit fees where applicable.

Mezzanine Finance

Mezzanine finance can allow investors and property developers to borrow larger amounts than would ordinarily be possible with more traditional property development finance.

Mezzanine arrangements can also be used to allow funding to be secured for higher risk projects, or where finance availability is restricted.

Mezzanine finance is structured as a second charge, in that it sits on top of the senior debt.

The benefits of mezzanine finance for property development projects include better access to finance that would normally fall outside the lending criteria for traditional commercial property loan agreements.

The developer is also more likely to retain greater control over the project and a higher percentage of the final profits.

This form of finance is generally seen as higher risk which means that monthly interest rates are higher however; loan to value amounts of ninety to one hundred percent can be achieved.

Joint Ventures

For many property developers struggling to raise sufficient property development finance a strategic joint venture with an experienced, well-funded partner is often an excellent route to making their development project a reality.

A good joint venture partner will normally bring project funding, experience and essential network contacts to a project in return for a share of the profits on completion.

Specialist Property Development Funding Solutions

As a leading independent property investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.

If you are a property developer looking for specialist property development finance solutions please contact us today to discuss how Investment Property Partners can help you.

You may also be interested in…

Contractors method of valuation
Property development finance guide
Residual method of valuation
Property yield, calculating yields and return on investment
Commercial property valuation using the profits method
Capital gains tax property disposals

Further reading…

More information about property development for real estate developers and contractors… here →