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If you are a property owner for commercial or residential purposes, you may be eligible for a development finance loan – also known as a bridging loan – for a new property. These loans are short term finance agreements that allow borrowers to purchase a property early or secure funds to develop a property.
Bridging finance is usually secured against the property for sale or other nominated property. This means it is easier to access development funds, especially for those with poor credit ratings. Since the loan is secured against an already-owned property, the process of releasing funds is much faster than traditional property loans.
These property development loans are the most popular way of financing short-term building projects in the UK. They allow borrowers to access funds they need to buy or renovate a property quickly and without fuss. That is what development finance loans are designed to do; the idea is to provide a short-term financial solution for large-scale projects.
To secure a development loan, you will have to nominate a property to secure the loan against; you will also need to provide a detailed exit strategy to pay back the money. As the project progresses, money can be released as and when you require it. Unlike a mortgage, there are no exit fees to pay.
Lenders differ in structures of fees, charges, and borrowing costs; however, some costs are fairly standard across the board. These include facility fees or arrangement fees, which are calculated as a percentage of the loan amount, the interest rate calculated monthly or annually, and a broker fee.
An arrangement fee will probably be charged by the lender for setting up the loan and will be a percentage of the loan amount, either gross or net.
Development finance is designed with the borrower in mind. This type of finance allows buyers and property developers to complete and sell expensive projects quickly and as efficiently as possible. While many of these projects are similar, development loans are still tailored to individual requirements.
Although the finance process is tailored to the individual and project’s unique needs, some processes are fairly constant. There will always be a free no-obligation consultation, an agreement in principle issued to the borrower, and regular contact with the lender through the development process.
Unlike a mortgage arrangement, a development finance loan is designed with short-term benefits in mind. There are no monthly payments, with the interest rolled up and repaid with the outstanding balance at the end of the term. There are no early repayment charges as there are on a mortgage, benefitting the borrower if they’re able to repay the loan early.
Typically there are three repayment strategies. There is the buy to sell, the build to rent, and a combination of the two. The buy-to-sell is an immediate sale that pays back the money as a lump sum. The build to rent is a more long term repayment option. The combined approach sells part of the property but also retains a part for renting.
Development Exit Finance refers to an extra loan that is taken towards the end of development and is used to pay off any debts incurred in the build. It can be thought of as a miniature bridging loan to transition from coveting the project and making the sale. This type of loan has several advantages, including increasing profits, saving interest, and cutting costs.
Whether you are an experienced developer, a buyer at auction, or an individual looking to take advantage of market prices, a development finance loan could be the thing you need, but don’t dive in at the deep end. It’s a good idea to consult with a whole market development finance broker who can assist you in making the right choices from the start.
At Sort Finance, our development finance brokers know the process of securing finance loans for projects. We can assist you with eligibility checks and documents that will improve your chances of success. A whole market broker has access to all lenders across the country and can tailor the best loan option for your circumstances and project.
FCA disclaimer
Based on our research, the content contained on this website is accurate as of most recent time of writing. Lending criteria and policies may change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.
The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice.
Some types of buy to let, commercial, bridging, mortgages are not regulated by the FCA.
Please think carefully before securing other debts against your home or releasing equity from a property you own. As a mortgage is generally secured against your home or your investment property, it may be repossessed if you do not keep up with repayments on your mortgage.
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