guide to development finance

By: London Wall Associates Ltd  03/12/2010
Keywords: Business Insurance, commercial finance, commercial mortgages

 

Guide to Development Finance

A question we get asked frequently is what is the difference between development finance and a commercial mortgage. Development finance is where the person or company are looking to develop a property or properties and they have some capital and needs a short term loan normally between 12 -24 months, to help complete the development. Where as a commercial mortgage is normally required when the above development has been completed and they need a longer term commercial mortgage in place to replace the existing short term loan.  

Development finance is required when a client is building a property and there is a funding gap. Funds may be required to cover some of the following costs:

The initial purchase of the land plus all the build costs for the development,

Plus labour costs and any interest and charges the client has to pay whilst the property is being developed

Property developers have vision. The key to their success is that they must understand the market and know how to turn that vision into a reality.

Yet often developers have problems getting the finance right, knowing

What products are available in the market and choosing which lenders to use can be a major issue.

Development finance is available whether your clients are a small property developer building 2 units a year, or a sizeable company with a number of schemes.

We have access to lenders willing and able to offer flexible solutions.

Scope for Development Finance

Development finance is a very specific type of finance. Whilst the high street lenders are active in this market their terms may be restrictive,

Therefore there are a wide range of development finance specialists

Lending in this market.

Short term development finance is usually required from a specialist because:

• Most banks and building societies will not provide buy-to-let mortgages until the property has been owned for at least 6 months

• Most banks and building societies will only provide a buy-to-let mortgage if the net rentals covers the interest payments by a factor of at least 125% (residential)

160% (commercial)

• Most banks and building societies will not lend on unoccupied rental properties or properties that require renovation work prior to being put on the rental market

Once the property development has been completed, we should be able support the client with obtaining a long term commercial mortgage to replace the development finance

Or the client may simply want to repay the development finance lender out of the sale proceeds.

So What are the Client Benefits

• Speed. Development finance can be raised quickly

• Development finance lenders are property based lenders, in most instances the interest payments are deducted from the advance so the clients do not

Have to demonstrate affordability

• Each case is assessed on its individual merits

• The development lender will be on hand to support the client with advice on their development throughout the process.

The same person, who authorises the funds, will work with the client to

Manage throughout the development programme.

Here is an example of what type of funding is available for the smaller developer

• Commercial property finance available on both residential and commercial properties

• Finance from £50,000 - £5,000,000

• Up to 55% of GDV (gross development value)

Keywords: Business Insurance, commercial finance, commercial mortgage, Commercial Mortgage Rates, commercial mortgages, commercial property finance, commercial property insurance

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