Whether you're a seasoned developer or just stepping into the complex world of property development, securing the right finance is paramount to turning your vision into reality. Development finance, distinct from other lending options, is specifically designed to fund the acquisition of land, construction, or major refurbishments. Today, we reveal the top development finance lenders in the market, each offering unique benefits to developers at different stages of their projects.
Understanding Development Finance
Development finance, often categorized under commercial lending, supports a project from the initial land purchase through to completion and beyond. Key features include:
- Short-term Financing: Typically ranging from 12 to 36 months, it’s designed for projects with a clear exit strategy.
- Interest Rates: Generally, higher than traditional mortgage rates due to the perceived risk associated with development.
- Repayment Structures: Options include interest-only, roll-up, or deferred interest models.
- Loan to Value (LTV): Can often be up to 70% of the GDV (Gross Development Value) or more, depending on the lender’s criteria.
Top Development Finance Lenders
1. Aldermore Bank
As a leading figure in development finance, Aldermore Bank stands out for:
- Speedy lending decisions, often within days.
- Offers up to 70% of GDV or 75% of costs, whichever is lower.
- Interest-only repayment options.
- Specializes in funding for light to medium refurbishments as well as ground-up developments.
2. Shawbrook Bank
Shawbrook Bank caters to developers seeking:
- Development finance for residential and commercial properties.
- Flexible lending terms up to 100% of build costs in some cases.
- Transparent fee structure and bespoke solutions.
- Interest roll-up to ease initial project burdens.
3. Paragon Bank
Paragon Bank focuses on supporting:
- Land acquisition and development projects up to 12 months.
- Up to 65% LTV based on gross development value (GDV).
- Experienced developers with a proven track record.
- Funding for conversions, new builds, and refurbishments.
4. LendInvest
LendInvest provides:
- Streamlined application process with quick decisions.
- Ability to fund up to 75% of costs or 70% of GDV.
- Diverse repayment options and flexible terms.
- Focus on projects across the UK.
5. Maslow Capital
With an eye on large-scale developments, Maslow Capital offers:
- Funding for both residential and commercial developments.
- Interest-only financing with multiple drawdowns available.
- Expertise in funding for high-value projects up to £50 million.
- Innovative approach to underwriting with a dedicated team.
🔍 Note: These lenders' offerings are subject to change, so it's essential to get in touch with them directly for the most current information.
The financing options provided by these lenders cater to various needs, from land acquisition to full development funding. Choosing the right lender depends on your project's specifics, including the project's scale, exit strategy, and your personal development experience. Here are some key points to consider when approaching these lenders:
- Experience: Lenders prefer developers with a proven track record, although some are more open to new developers.
- Project Size: Different lenders have different thresholds for project sizes; some cater to large-scale developments while others focus on smaller projects.
- Repayment Terms: Understand the implications of interest-only, roll-up, or deferred interest options on your cash flow.
- Fees and Charges: Be aware of all costs involved, including arrangement fees, exit fees, and any early repayment charges.
In summary, development finance is a critical tool for developers to bring their projects to life. With the top lenders mentioned above, you have a variety of options to fund your next development venture. Each lender brings unique benefits to the table, tailored to different project types, sizes, and developer experience levels. Always consider your project's requirements, your financial position, and the terms offered by lenders before making a decision. Keep in mind that competition in the market can drive lenders to offer competitive rates and terms, so it's wise to shop around and negotiate to get the best deal possible for your development project.
What is the difference between development finance and a traditional mortgage?
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Development finance is short-term lending focused on funding the acquisition, construction, or refurbishment of property. Traditional mortgages, on the other hand, are for long-term property ownership and repayment with lower interest rates due to lower risk. Development finance often includes features like interest roll-up and higher LTV ratios to cater to the unique needs of property development.
Can new developers secure development finance?
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Yes, although some lenders prefer developers with experience, there are institutions like LendInvest that cater to newer developers or smaller projects. However, terms and LTV might be less favorable, and personal guarantees might be required.
What happens if my project exceeds the planned budget?
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Exceeding the planned budget can pose a challenge. Lenders might offer additional financing if your project still aligns with their lending criteria, or you might need to explore contingency plans like injecting more equity or seeking additional loans. Good project management and contingency planning can mitigate these risks.
How does the exit strategy impact development finance?
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The exit strategy is crucial in development finance as it dictates how the lender will be repaid. Strategies like selling the developed property, refinancing with a long-term mortgage, or retaining and letting can affect the terms of the finance, the interest rates, and the loan term.
