Funding11 works with many lenders who are more than comfortable when providing finance facilities that are secured against properties requiring large extension or renovation works or other development sites.
Development finance is short-term, secured finance that is used by property developers to fund conversions, developments or heavy refurbishments of properties. It can be utilised for different types of building projects but tends to be used for projects that are considered ‘heavier’ because they call for serious building works.
‘Lighter’ projects like internal refurbishments are probably better suited to a straightforward bridging loan.
With development finance funds are advanced at the start and then topped up during the duration of the build. Initially, funds are advanced against the site’s value. The majority of lenders are happy to advance as much as 65% of the value or just a little less.
Once the building has started, further funds are provided at pre-agreed intervals. Many lenders are often willing to advance as much as 100% of the costs. As each stage is drawn down the interest is kept by the lender. This removes the need for monthly payments. When development comes to completion, the loan is completely redeemed with any accrued interest.
The lender combines all these metrics to establish the maximum loan. If there is a conflict between the figures, the lowest will be the one chosen to cap the loan. When construction is completed, the expectation is that the loan will be repaid. It is common for people to either look to refinance to a term loan or to switch to an exit product while the site is sold. As well as interest charged, there are normally other fees.