Development Finance for Property Projects

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Why Development Finance Is Different

Development finance is assessed differently from a standard commercial mortgage because lenders need to consider both the property and the proposed development, including the costs, programme and how the finance is expected to be repaid.

Assessment can depend on:

• The property or site
• Purchase price and/or current value
• Proposed development
• Planning position
• Development costs
• Build or refurbishment programme
• Borrower's experience
• Available equity
• Projected end value
• Repayment or exit strategy
• Overall viability of the project

The right funding structure needs to reflect the project as a whole, rather than simply focusing on the headline rate or maximum borrowing available.

What Development Lenders Look At

Lenders assess each development individually, and may consider factors such as:

1. Planning - Whether the required planning position is in place and appropriate to the proposed project.
2. Development Costs - The expected costs of construction, conversion or refurbishment.
3. End Value - The anticipated value of the completed development.
4. Borrower's Experience - Previous relevant development or property experience where applicable.
5. Equity & Funding Contribution - The borrower's available funds and overall contribution to the project.
6. Build Programme - The proposed timeline and development schedule.
7. Exit Strategy - How the development finance is expected to be repaid.
8. Overall Project Viability - Whether the proposed development and funding structure make commercial sense.

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Frequently Asked Questions

What is development finance?

Development finance is short- to medium-term funding used to finance property development projects such as new builds, conversions, redevelopment and substantial refurbishment.

What types of development can development finance be used for?

Development finance can potentially be used for projects including ground-up development, conversions, redevelopment and substantial refurbishment, subject to the project, borrower and lender criteria.

What do lenders look at when assessing a development?

Lenders may consider the planning position, development costs, projected end value, borrower experience, available equity, build programme, exit strategy and the overall viability of the project.

How much development finance can I borrow?

The amount available depends on the project, property, development costs, projected end value, borrower contribution and the lender's criteria. The appropriate structure needs to be assessed against the specific development.

Can I use development finance for refurbishment?

Yes, development finance can be suitable for substantial refurbishment projects where the scope of works and overall funding requirement make development funding appropriate.

Do I need planning permission before applying for development finance?

Planning requirements depend on the proposed development and the lender. The planning position is an important part of assessing the project and should be considered early when structuring the finance.

What is the exit strategy for development finance?

The exit strategy explains how the development finance is expected to be repaid, which may include selling the completed development, refinancing onto longer-term finance or another appropriate repayment route. Lenders will assess whether the proposed exit is credible.