Can first time developers get development finance?

Yes, financing solutions are available to first time developers. Everyone has to start somewhere.

Many lenders do prefer funding projects where the developer has solid experience, along with successful outcomes. However, there are plenty of good options for those inexperienced developers to be.

You will need to demonstrate that you fully understand what is needed to complete your project, or that you have this knowledge from within your team of specialists.

It is rare for 100% development finance to be available to those without any experience, the risk for the lender is too high.

What types of finance are available?

Property development projects can come in all shapes and sizes, so there is a variety of development loans and bridging loans to suit each purpose. So you will need to have some idea of what type of project you will be starting and the extent of the works needed.

Here are some examples:

Buy to sell (or flipping) – When undertaking a property flip the profit is generally made from the purchase price. Buying an under value or low cost property and then selling it on quickly.

Refurbishments – Purchase a run down property and then refurbish with a view to selling immediately. Quite a low risk project assuming the refurb work is light. Often these properties are bought at an auction.

Conversions – These can be very lucrative and require major work to the property. It could involve converting a commercial property into residential units or maybe converting a large house into flats.

Ground up builds – Possibly the most risky. Where you buy the land and then build a new property.

The essence of development finance is that it is for the short term only. Most loans will be setup for 12-24 months duration only, with an exit needed at the end. All loans will be interest only and generally with no requirement to make any monthly payments. The interest gets added to the loan balance each month and the whole amount is repaid in one go at the end.

Don’t worry though, our experienced advisors will be able to suggest the most suitable finance solution for your project and then look to get this on the best possible terms.

What is your exit strategy?

Your exit strategy is ‘how’ you will repay the development loan back within the time period agreed.

All lenders will look into this very carefully and it is a key part of any development loan application. If they do not feel that it is achievable or realistic then the loan will not be granted.

Property development finance is not paid back monthly, as with a buy to let mortgage. The whole loan, plus any accrued interest and fees, is paid back in one go before the loan term expires.

There are 2 ways to repay the loan:

1. Sale of the property – If you intend to buy, refurb and then sell this will be your exit route.
2. Refinance – Should your goal be to keep the property then you will most likely need to refinance over to some longer term finance such as a buy to let mortgage.

Read more about exit strategies for development loans.

Do I have to use a broker?

You do not have to use a broker when applying for property development finance but it will be a whole lot easier if you do.

Firstly, your broker can help you to understand what finance options are available, the choice of lenders, the costs and how you pay it back. They will help to present your case to the lender with all of the information they need, so that the loan is more likely to be granted.

Secondly, the finance companies that offer development loans generally prefer their business to come via a broker. Some lenders only accept loan applications once a broker has assessed its viability and collated the required information.