Guide to Property Finance

Introduction to development finance

What is development finance?

This is the general term for all financing used to help fund a new development, whether residential or commercial.

It covers all types of mortgages and bridging loans.

The finance is usually for around 60% to 70% of the development’s current market price, not the value when any work on it is completed. It is usually funded via tranche drawdowns, which means you can draw funds out of your mortgage to pay for work.

When would you use it?

It can be used for office refurbishments, converting residential space into commercial property, or to help fund a planning application on a piece of land or property.

It can cover everything from a single unit project to larger multi-unit schemes. Development finance is often used for Build-to-Let projects. It is also useful to cover sales period funding, providing a business income during the time between completing the development, and letting it out or selling it.

The fine details

  • Lenders funds a percentage of the purchase cost and facilities, then development finance is put in place to provide up to 100% of the construction costs, professional fees and interest
  • Borrowers usually need appropriate and relevant experience as developers or landlords and expertise
  • Facilities are provided in line with the project
  • Terms stretch from six to 24 months