Understanding Development Finance

Development finance has emerged as a specialised form of short-term lending, designed specifically to fund a house building loan or all types of property development projects. These schemes span from large structural alterations and major extensions to the creation of entirely new properties on freshly acquired land; these will often require the developer to secure planning permission.

Planning

To successfully secure development finance, one must present a meticulously crafted project plan. This plan should highlight the project’s objectives, the envisaged budget, the proposed timeline, potential profits, and the foreseeable risks. An integral component of this plan is the ‘exit strategy’. It outlines how borrowers aim to settle the loan, with selling the finished properties or transitioning to a buy-to-let mortgage being the most common strategies. Furthermore, lenders typically look for either a track record of successful developments or that the developer has put together a team equipped with such experience. It’s also common for lenders to expect borrowers to invest some personal capital, a sign that reduces the lender’s risk and underscores the developer’s commitment.

Costs

The cost associated with development finance can vary, influenced by several elements. These include the nature and scale of the project, the house-building loan amount and its duration (usually ranging from six to 24 months), the perceived level of risk, and the current market conditions.

Additionally, borrowers should be prepared for other incidental costs, including arrangement, exit, legal, and valuation fees.

Challenges

While development finance offers a way to fund substantial projects (and the promise of significant returns), it comes with its share of challenges. Risks such as construction delays, unforeseen cost escalations, market volatility, and sudden regulatory changes can pose hurdles. Given these complexities, it becomes crucial to conduct thorough research, seek expert advice, and meticulously plan for potential risks.

Funding

Alternative Bridging is a leading provider of development finance solutions, with over 30 years’ experience in property finance. We offer tailored lending options for construction and extensive refurbishment projects. Additionally, our development exit loans provide an invaluable lifeline for borrowers approaching the conclusion of their loan term. It offers them the flexibility to free up working capital for other ventures without the pressing need to expedite sales or confront extension fees.

Some lenders provide regulated development finance, catering to projects where at least 40% of the property is tied to the borrower’s main residence. This might involve property development within a residential home, intending to sell one while residing in the other.

PartX

In a move highlighting our constant drive for innovation, at the beginning of 2023 we introduced the Part X Property Finance product, aimed at SME developers and estate agents. This is a pre-consented part exchange facility, devised to expedite sales and streamline chain breaks in new housing developments. Part X equips developers with the necessary finance to seal a part exchange deal with their property buyer. Additionally, it grants extra funds for minor refurbishments, allowing developers to enhance the exchanged property, maximising its resale value.

In the complicated world of property development, expertise is invaluable. Partnering with seasoned lenders like Alternative Bridging can significantly smoothen the journey for developers, ensuring they navigate the intricacies of development finance with confidence.  Read more here on development finance.