What is Property Development Finance?

Property development finance loans are a type of short-term loan designed with property developers and construction firms in mind. Whether it’s a new build, a conversion or renovation, property development finance can be used to either fund major new building projects or ambitious renovations.

Funding a residential or commercial property development project with the right kind of financial backing is important, as it can significantly impact the entire development process. The initial investment, the cash flow throughout the construction process and, finally, the profitability of the finished property itself are all dependent on securing the right kind of funding to see the development through from start to finish.

You do not have to have an impressive commercial portfolio of properties for you to be considered for this kind of finance. Even if you are an amateur developer looking to purchase your first residential or commercial property, property development finance can be utilised as a key borrowing tool across the spectrum of property development. It may be more difficult, however, to secure a loan if you have no relevant history in property development. However, don’t let this discourage you from attempting to obtain this kind of loan; if you have a viable development plan there are lenders out there who will consider you.

Here’s a look at what property development finance is used for, how it works, it’s pros and cons and how you can secure a loan with Ping Finance.

What is Property Development Finance Used For?

There are different kinds of development that can be financed. There are smaller scale developments such as aesthetic renovations with no structural work, potentially carried out for the betterment of the occupier’s own property, or to raise its value before it’s sold. Lenders will also consider much larger scale developments designed to drastically increase the value of a property. These range from development projects such as conversion projects and new builds, involving heavy structural work.

Property development loans will help you to finance the conversion or new build of a project, whereas a bridging loan will give you the upfront cash to make the initial purchase until a more traditional mortgage can be sought, or for refurbishments on a property.

How Does Property Development Finance Work?

The first step in securing property development finance is to thoroughly assess and work out the viable costs of your project, and projected profit margin. This is what lenders will be interested in; they will want to be sure that they are going to see a return on their investment before they will consider lending to you. You need to show that your project is a worthy investment and economically viable to lenders. Before trying to secure funding, you should gather the following information to present to potential lenders:

  • The value of the property or land.
  • The predicted end value of the project (gross development value).
  • The building and renovation costs.
  • A schedule of work and a cash flow forecast.
  • A portfolio of experience in development (if you have one – this is not essential but will increase the likelihood of securing a loan).
  • A copy of planning permissions.
  • Details of any professionals involved in the project.
  • An exit strategy.

Rather than handing you a lump of cash from the outset for your project, your lender will work with you to budget your lending as the project progresses. A surveyor will be appointed by the lender to asses each part of the build as it is completed, signing off the next capital release in line with your credit. This is a valuable asset that will help to ensure your project stays within budget. With a property development finance loan there should be enough capital to move forward with the project, so hopefully you will not have to apply for any additional funding mid-construction.

You can borrow up to 70% of the gross development value of the project. As property development finance is based on an incomplete build, the risk is higher to the lender, so the loans are typically used over a short to mid-term period until the property qualifies for a standard mortgage or until the development is sold.

Pros and Cons of Property Development Finance

Property development has the potential to be an incredible lucrative investment, but it can also be a risky business; returns are speculative, not guaranteed. Here are the advantages and disadvantages of property development finance:

Pros:

  • You can make a lucrative return with a well-executed project.
  • By sharing the finance burden with a lender, it keeps your capital free to take advantage of other opportunities.

Cons:

  • There will be tight monitoring due to the perceived risk.
  • You may encounter unforeseen additional costs along the way, eating into your budget.
  • You will need to work to a strict budget and time scale.

Secure Property Development Finance with Ping

When you apply for property development finance, you can save a lot of time by enlisting in a broker like Ping Finance to do the leg work for you. Trying to find a suitable source of finance for your project is the last thing you want to be worrying about when you no doubt have a substantial amount of work to do with planning the development itself. Applying for each individual property development loan can take weeks or months, and all with no guarantee of success. Ping Finance can work on your behalf by approaching the most suitable lenders on our panel to help you find an outstanding deal, so you can concentrate your time and effort on your upcoming project.

Applying for property development finance couldn’t be easier with us. Simply start by filling out our online enquiry form to find out more information about our services, and you can be well on your way to securing that loan. We offer straight forward solutions for growing businesses and are committed to delivering exceptional service from start to finish. Contact Ping today, and one of our friendly advisers will be on hand to talk you through the process of securing your property development loan.

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