People tend to confuse Development Finance with Commercial mortgages, which is more than easily done as the two do tend to overlap one another. Development finance is where an individual or company/business is looking to develop property/properties and have some capital but need a short term loan to help complete the development. Depending upon the lender and the circumstance, such loans normally span between 12-24 months. Commercial Mortgages are different in that they are a form of replacing the short term development finance loan when additional funds are needed. Hence, Development Finance and Commercial Mortgages do tend to overlap. Despite the “Credit Crunch”, Development Finance is rapidly becoming more main-stream and is a very specific type of finance. Development finance is an extremely active market, with businesses wanting to expand for survival during the economic downturn. There are many high street lenders out there and therefore there is a wide variety of development finance specialists available to the consumer. It is recommended that you seek professional advice in order to find the right deal for you.
Typically in the UK, Development Finance is used for various development plans such as; Property Refurbishment, New Build Projects, Property Conversions and initial land purchase and international projects. Additionally, there are various types of Development Finance which undoubtedly adds to the confusion and uncertainty surrounding the term. For example, a Senior Debt Loan is the most popular as it covers the first 70%-80% of loan to value and a Mezzanine Loan is second to the above form and helps the developer if his money is tied up elsewhere in different things. It is to be noted that this is by far a definitive list.
Property development is about having a vision; it’s about understanding the market and turning that vision into a reality. However, developers often have problems getting the finance right and knowing what products are available and which lenders to use can be confusing. Which form of development funding is right for you, depends upon your vision, whether you are a homeowner looking to invest or a company wishing to expand. There is also finance available for community projects which provide financial support to businesses and individuals in disadvantaged communities. Therefore, Development Finance is determined entirely upon an individual assessment made by the lender. In order to determine who to lend to, lenders assess various aspects of the development proposal. For example, ground work and services, land purchase and footings/base before coming to a final conclusion. In the difficult current market, lenders have to be more careful when choosing which developers to back; they are much more likely to support a developer with experience in the field than someone new to the industry.
Development finance is somewhat a necessity to make your development vision a fruitful reality. The loan can cover costs such as building costs, labour and can often include any architect costs and other professional fee’s such as wages and drawings. Property development loans will be secured against the land or the property you wish to develop. Traditional forms usually require a 20%-30% deposit, whereas more recent forms are now available for debt, to release equity or mezzanines.
Loan to Value rates and interest rates vary depending upon experience and percentage of funds required for development. Advantages of this form of financial assistance include it can be raised quickly, turning your dream into reality sooner rather than later and that each proposal is considered on its individual merit. Another advantage of this form of finance is that the lender will always be there to help manage the development programme and lend support. So, whether you intend to use your finished project as an investment or whether it’s used to help your business grow, Development finance is a fully supportive and flexible form of financial assistance to help you make that vision a reality.
Whenever considering any financial product it pays to shop around, so please do research the market to ensure you get the best commercial mortgage rates available, and are aware of all the options when it comes to commercial property finance.
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