Development finance is used by developers to finance the land purchase and also the build costs. Deemed short term finance between 12 to 24 months
This can cover just one unit up to an estate of houses or block of flats.
Please bear in mind that if you are going to develop your garden, this may be treated as regulated development finance (call to discuss).
The Funding is usually released in stages, in arrears as the build progresses.
The MAX the lenders will consider is usually up to 70% of the land cost and 100% of the build costs.
The total loan plus interest must not exceed 70% of the gross development value.
But you will find the best deals are with the lowest cost of capital is 60% of the land cost and 100% of the build cost.
Most development finance loans are set up to allow monthly interest charges to be added to the loan and interest is only charged on the funds that are drawn down.
The interest is then repaid along with the original money borrowed when the project is completed.
This makes sure the developer keeps control of the cash flow.
As units are sold during the course of the development, most lenders will require some or all of the proceeds to be used to reduce the amount outstanding on the development finance facility.
Before any facility is offered, the lenders will want to see a clear feasibility study and you must have an exit plan before they agree to your loan.
1 Sale of Property
2 Refinance on to a term loan
3 Refinance to another lender.
The Land/Plot price is all-important paying too much and you are doomed and I would recommend a great book if you are new to the process covers a lot of the pitfalls
Property Development, Lloyd Girardi
They use a simple formula to calculate the land price
GDV – (Profit + Build Costs + Cost Of Finance + Other Costs) = Land Value.
If you are planning on running a development give me a call because we can offer a turn-key option a
Finance and Build Package.
Call today 01923 254 760