Don't Have Cash Lying Around? Then You'll Need Property Finance

Posted by The Landsite on 20th October 2022 -

You won’t be short of lenders and many finance brokers on The Landsite are on hand to walk you through the jargon and complexity of development finance.   Depending on the type of project you want to work on, there’s a variety of options available.   Bridging loans, refurbishment or development finance and commercial mortgages are all types of property finance. 

Refurbishment finance is used for re-development of a property, regardless of the need for planning permission or building regulation approvals.  

This could be a residential refurbishment or conversion of a commercial property to residential use.   The loan amount is based on the complete value of the development (often up to 70% of the completed value) and is secured by a first charge over the property, typically for a term of up to 18 months.  Interest can be rolled-up during this term meaning that both your loan and interest are repaid in one amount when the project is sold. 

Development finance is an umbrella term for a wide variety of finance, generally aimed at large scale residential or commercial projects and loan amounts of several million pounds are common.  Due to the complexity of these projects the terms can be longer than refurbishment loans as the projects are more complex, ranging from 24-36 months.  Typically, a maximum of around 70% of the total loan to gross development value (LTGDV) can be borrowed and as with refurbishment loans the interest can be rolled-up and repaid when the project is sold. 

Bridging loans are a useful option if you have exchanged contracts on a property but are waiting for your property sale to complete.  Bridging loans have a short duration and charge a higher level of interest.   These loans are often used outside of development finance by people who want to buy a new home but haven’t yet sold their existing one.  When used for property development, these loans can be used to buy an additional property, renovate it, and then sell. Keep in mind your lender will want to know that you have the ability to complete the planned project.   A track-record will stand you in very good stead and you will be expected to demonstrate a sales strategy and the ability to service the interest charges.   

If you are borrowing as a company, you can expect to be asked for a debenture giving a fixed and floating charge over all the assets along with a personal guarantee from a controlling director.  For more advice, find one of our many trusted brokers on The Landsite. 

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TLS Insights October issue