Small and medium-sized housebuilders are building more homes….
In their July 2017 report, Savills indicated that small and medium sized developers and housebuilders are building more homes.
Read more of the details by going here: https://pdf.euro.savills.co.uk/uk/market-in-minute-reports/uk-residential-development-land-july-2017.pdf
It goes without saying, property development is a crucial area for the UK economy and of course development schemes need to be financed.
Property development finance can be used for new build projects, conversions, refurbishments and extensions.
There are various types of funding available for both experienced developers and also for those embarking on their very first project.
So, if you are a first-time developer we can still help you!
The terms available from development lenders vary a great deal and each project is looked at on an individual “deal-by-deal” basis.
As an indication, for a typical development project, finance can normally be considered within the following parameters:
| Term | Dictated by the type and length of the project but typically 6-24 months |
| Interest rate: | Varies from 7% per annum to 1.25% per month dependent on deal |
| Fees: | Lenders typically charge both an arrangement fee and an exit fee. Arrangement fees are usually in the region of 1%-2% with exit fees at around 1% of either the loan amount or the end value of the property. |
| Loan size: | £100,000 up to £25 million. |
| Loan to costs: | up to 80% of the overall costs of the project |
| Loan to GDV: | GDV is the gross development value and refers to the end value of the project. Up to 65% can be considered providing it does not exceed 80% of the loan to cost calculation |
During the period of the development, the interest costs are rolled-up and then the accumulated interest costs are paid at the end when the total development loan is repaid.
During the development phase, funds are only drawn as required. In other words, funding is not drawn all in one go, but rather on a staged payment basis as the development progresses. This has the benefit of meaning interest is only paid on the funds drawn.
Funds are normally drawn down against invoices or on larger projects, against architects or quantity surveyors’ certificates
Higher levels of gearing up to 90% loan to cost/75% GDV are also available. This involves arranging both senior debt finance and mezzanine finance.
Mezzanine finance is a specialist product which can be a very useful funding option for developers. We will deal with the subject of mezzanine finance in more detail in another blog.
Similarly, 100% development funding is another option which some lenders will consider. In this situation, the developer injects no cash into the deal and instead the lender injects 100% funding to fund the entire project.
In the case of 100% funding, each deal is very much looked at on a deal-by-deal basis but as part of the deal the lender will structure a profit share option with the developer.
Again, we’ll talk about this type of funding in more detail in a future blog.
If you are a developer or are looking to start your very first development, then please give us a call on 020 8949 2122. We would be delighted to hear from you.
Alternatively, you can email us at keith.park@fundingtrack.com
