Development Finance

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Property Development Finance

If you’re a property developer, investor, or landlord, there’s a range of finance available to help you kick-start your next project. But even for experienced developers, the alternative lending market can feel large and complex — on this page we’ll run through some of the things to think about, so you can make the right property development finance choices.

Bridging finance or Development Finance

An important choice is whether to choose bridging or development finance. This can mean any short-term funding that helps pay for building and development costs. These two terms have significant overlap, and might seem interchangeable, but there are differences between the two. The main thing that determines if you need bridging finance or development finance is how ‘heavy’ the project will be.

How extensive are the building works going to be?

This is the most important question to ask before you explore your finance options for refurbishment or renovation. To determine what type of finance you need, it’s useful to think of projects in three broad categories:

Light refurbishment

This is the most straightforward type of project, where in general the main changes are aesthetic rather than structural, but may involve some internal work on floors, ceilings and walls.

Heavy refurbishment or renovation

As well as aesthetic changes, this could require moving internal walls, plumbing, or electrics, adding rooms and external walls, or even partial demolition and rebuilding.

Ground-up development

The most involved type of property project, starting with an empty plot of land, or a very heavy refurbishment/conversion (for example, when nothing remains but stonework).

The terminology in property development isn’t rigorously defined, so what some people consider a ‘light refurb’ could be considered heavy by others — and somewhat confusingly, all of the above are types of ‘development’.

Property Development Finance in practice

Depending on the type of project you want to embark on, there’s a world of finance options available. You might want a 'refurbishment bridge', which funds 3–24 months of building costs and sometimes comes with the option to convert into a mortgage later on. This type of product would cover the majority of light and heavy refurbs.

Then for more extensive projects and ground-up developments, you can find 'development finance' to cover both land purchase and building costs. For example, if a developer wants to buy a plot of land for £100,000 and spend another £500,000 building properties on it, a lender might finance 50% of the plot purchase and 70% of the build.

In this example that would mean the developer would only need £200,000 of their own money, rather than the total of £600,000 that the whole project costs — freeing up their personal capital for other projects, or unexpected expenses.

Experienced developers who act as landlords can also use property they already own to secure lending. With enough equity free in your portfolio, you can get finance to buy more properties — allowing you to grow your property portfolio without having liquid cash.

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