What is development finance?
Development finance is a short-term loan designed for residential, commercial, or mixed-use property development projects.
Unlike bridging loans, development finance is released in stages to fund various phases of the project.
What can development finance be used for?
Development finance can be utilised for both conversions and ground-up developments, covering the costs of land or property acquisition as well as the build or conversion expenses. Different types of development finance are available depending on the specific nature of your project.
Who is eligible for development finance?
Development finance is typically granted to experienced builders and developers, with specialist lenders considering the future value of the property when assessing the application. While there are some specialist lenders willing to work with inexperienced developers in certain situations, these options are rare and often come with stricter terms. Working with a knowledgeable broker can help you identify the most suitable opportunities based on your experience and project scope.
What rates can I expect with development finance?
Interest rates in the development finance market can vary significantly. Several factors influence the final negotiated interest rate, including the developer's experience, the loan amount, the location of the site, and the gross development value (GDV) of the project. These variables can lead to substantial differences in rates across applications. Working with an experienced broker can help secure the most competitive rate based on your specific project and circumstances.
How much can I borrow with development finance?
Typically, you can borrow between £100,000 and £2,500,000 with development finance, covering up to 90% of the project costs.
Initially, lenders may only release up to 70% of the funds on day one to facilitate the purchase of the site and kickstart the project, with further funds released in stages as the development progresses.
What will the application include?
The lender will evaluate a development finance application based on several key factors, including:
- The current value or purchase price of the property
- The predicted value after the development is complete (Gross Development Value, or GDV)
- The costs and timescale of the development project
- The experience of the developer and the involvement of other professionals
- Any planning restrictions or building regulations relevant to the project
These factors help the lender assess the feasibility and risk of the development before approving the loan.
What is the term of development finance?
As a short-term finance option, development finance typically has a term ranging from 4 months to 3 years, depending on the scope and duration of the project. This flexible timeframe is designed to accommodate various types of developments, from small conversions to larger, ground-up builds.