Our FAQs page is the quick route to finding out all about development finance

Development Finance FAQs

Below are the most commonly asked questions about this type of loan

What is development finance?

Development finance is a specialised borrowing product that is designed to cover the cost of completing a property development project. This could include any one of a large number of tasks, such as the construction of one or more new-build properties, a large-scale property conversion, major renovation works, or a part-build. At Donkey Finance, we can provide funding suitable for residential and commercial projects or even mixed-use developments. Applications for this type of finance are processed and approved on a case-by-case basis, with each individual project assessed on its own merits.

Unlike traditional mortgaging products, development loans are released incrementally, with additional funds being made available as the various stages of a project are completed. As the development progresses, the value of the project increases, and the additional equity is used as security against which any new funds are lent.

In most cases, you will need to own the land you are building on, and planning permission will also be required in order for a lender to feel confident enough to release the funds. A proven track record is also a good sign as far as the lending facility is concerned, and it always helps if you can provide detailed proof of any previous development projects you have successfully completed in the past.

How do I finance real estate development?

The funds required to finance real estate development can be accessed via multiple channels. In most cases, development finance is available for between 75% and 90% of the total value of the project. In all instances, sufficient security must be provided, typically in the form of existing property or combined assets.

Specialist development finance provides an accessible, flexible, and affordable alternative to more conventional loan and funding channels. Bridging loans can also be used to finance real estate development if the applicant has a confirmed exit strategy in place. The proviso with bridging loans is the capacity to repay the loan in full within a matter of weeks or months. If a longer repayment period is required, development finance or alternative secured loan options may be preferable.

Eligibility for development finance is determined in accordance with the size and nature of the project, along with the financial position of the applicant. If sufficient security can be provided, credit checks and proof of income may not be required.

If considering development finance for a real estate project, be sure to compare the deals from specialist lenders across the UK before making your final decision.

How do I finance a property development project?

A property development project can be financed in a variety of ways, in accordance with its size, nature, and urgency. In the case of larger and longer-term property development projects, specialist development finance solutions should be considered. Development finance loans are offered in the form of secured loans with flexible repayment periods and competitive overall borrowing costs.

Shorter-term requirements can be covered with a bridging loan, which can often be accessed within a matter of days. Urgent repairs, alterations, business modifications, and general business expenses represent ideal applications for commercial bridging loans. Traditional business loans and mortgage products may also be considered, but they typically take considerably longer to organise and access.

Peer-to-peer lending, crowd-funding, and other options exist for financing a development project, though they can be time-consuming to organise. Accessing the best property development finance deals on the market means setting your sights beyond the High Street. UK Property Finance offers a whole-of-market comparison service, working with independent specialist lenders across the country.

Contact a member of our customer support team today to discuss your requirements in more detail.

How do I finance a property development business?

Financing a property development business is a process similar to that of funding any other business. When getting the business itself off the ground in the first place, there are various personal loans, business loans, secured loans, government grants, and peer-to-peer funding options to consider.

You could also extend the value of your current mortgage or borrow the funds you need against the value of your property. Once up and running, a property development business can access development finance to fund immediate and ongoing projects. Across the board, development finance loans are offered in the form of secured loans, using the borrower’s property as collateral.

Development finance can be borrowed to cover around 75% to 90% of the total cost of the project, to be repaid over anything from 1 to 30 years. Bridging loans can be useful for covering more immediate and urgent expenses to be repaid in one lump sum a few weeks or months down the line.

Your ideal funding option will be determined by your current position, your objectives, and your budget. As an independent broker, UK Property Finance can help you locate and access the ideal funding solution for your property development business.

Why choose us?

When you apply for property development finance through us, you can rest assured that you are working with the industry’s leading experts. As well as being able to provide a popular range of finance products from the entire lending market, we offer the lowest rates available with no upfront application fees, and we can even fund up to 100% of the building costs of most projects, as long as you have sufficient collateral.

We can also help with land purchasing costs while providing funding options starting from £20,000 with no upper limit on borrowing, as long as the project is commercially viable and the applicant already owns the development land without any restrictions.

Why compare development finance options?

As a whole-of-market broker, we provide our customers with access to the widest possible range of development loans from leading lenders nationwide. We make it quick and easy to compare development finance options for all purposes, securing the best deals with the lowest rates of interest and minimal overall borrowing costs.

Simply contact a member of the Donkey Finance team, and we’ll take care of the entire application process on your behalf. We’ll compare development loans from the UK’s most established and capable specialist lenders in order to pinpoint the perfect development loan to suit your requirements and budget.

This is my first ever development project; is it still possible to arrange funding?

Yes, it is. We have several funding options available for developers at all levels of experience, even if this is the first project you have been involved with.

However, if you are new to building and renovating properties, our lenders will want to know that you are working with a skilled team who can provide the advice and support you require in order to see the project through to completion.

First-time developers will also be required to work with a reputable building contractor who can provide a fixed-price contract as a means of ensuring your project does not run over budget.

If you need any assistance in this area, Donkey Finance can even recommend a team of professionals who will work with you to get the job done on time and within the projected funding limits in order to ensure that the application and the project itself are a success.

My credit rating is less than perfect; will this be a major problem?

If you have a poor or somewhat problematic credit history and you are trying to secure funds for property development, then there are always going to be one or two lenders who will stand their ground and refuse to invest in your project.

However, most property development finance solutions are lent against the strength of the project itself, including the team of professionals with whom you surround yourself in order to ensure the work is realistically achievable and consequentially profitable.

If you have struggled to get financing elsewhere, please talk to our team, and we will try to figure out a workable solution on your behalf.

Is finance available for land without planning permission?

If you are looking to buy a plot of land and you have not yet acquired the necessary planning permission, either for a new build project or for a change of use with a view to further development, then your application for funding will still be considered by our panel of investors.

In most situations, we can usually secure funding worth up to 50% of the value of the development site, although we may be able to increase this figure if there is an existing property included with the land purchase.

When planning permission is eventually obtained, your original request will be reconsidered, and additional funds can then be made available to contribute towards the actual development costs.

Can development finance be arranged for permitted development rights (PDR) schemes?

The answer to this question is yes. Donkey Finance has successfully secured property development finance for numerous projects with PDR permissions in the past, and we have access to a variety of lenders and suitable funding solutions for these types of transactions.

Can I apply for funding via a limited company or business partnership?

Yes, you certainly can. It is perfectly legitimate and entirely acceptable to apply for development funds through a limited company or partnership, provided the director is able to provide a personal guarantee. Other than this, everything works exactly the same way as it would if you were to borrow the funds in your own name.

How easy is it to get development finance?

Securing development finance can be a complex process, often requiring a combination of factors to align in favour of the borrower. The ease of obtaining development finance hinges on several key elements:

  • Project Strength: A well-conceived and comprehensive project plan is essential to demonstrate the project’s feasibility and attractiveness to potential lenders. This plan should encompass detailed financial projections, risk assessments, market analysis, and a clear execution strategy.
  • Borrower Experience and Financial Standing: Lenders seek experienced developers with a proven track record of successful projects. This experience instils confidence in the borrower’s ability to manage and execute the development effectively. Additionally, strong financial standing, including a good credit score and sufficient equity, enhances the borrower’s credibility and reduces the perceived risk for lenders.
  • Market Conditions: The overall economic climate significantly impacts the availability and terms of development finance. Favourable economic periods may encourage lenders to be more open to financing projects, while downturns often lead to tighter lending criteria and increased selectivity.

In summary, securing development finance requires a combination of a strong project plan, a credible borrower profile, and favourable market conditions. While the process can be challenging, it is achievable with careful preparation and strategic planning.

Can you get 100% development finance?

Yes, it is possible to obtain 100% development finance, also known as joint venture (JV) development finance. This type of financing allows developers to undertake projects without contributing any of their own capital. Instead, the lender provides all the funds required for the project, and in return, they receive a share of the profits upon the property’s sale. The profit-sharing ratio is typically 50/50, but it can vary depending on the lender and the project.

To qualify for 100% development finance, developers typically need to have a strong track record of successful projects and a good credit score. Additionally, the project itself must be well-located, have a strong demand for the type of property being developed, and be well-supported by feasibility studies and financial projections.

100% development finance can be an attractive option for developers who lack the upfront capital to fund their projects. However, it is important to remember that lenders will carefully assess the risks associated with these projects, and they may require developers to provide personal guarantees or other forms of collateral. Additionally, developers should carefully consider the terms of the profit-sharing agreement, as they will be giving up a significant portion of their potential profits to the lender.

How much does development finance cost?

The cost of development finance can vary significantly depending on several factors, including the project’s size, location, complexity, the borrower’s experience, and the overall market conditions. However, in general, developers can expect to pay interest rates between 6% and 12% per annum for development finance. Additionally, there may be a number of fees associated with development finance, such as arrangement fees, valuation fees, and exit fees.

Here is a breakdown of the typical costs of development finance:

  • Interest rates: Interest rates on development finance range from 6% to 12% per annum. The specific interest rate that you will be offered will depend on the factors mentioned above.
  • Arrangement fees: Arrangement fees are typically charged by the lender to cover the costs of processing your application. They are typically a percentage of the loan amount, ranging from 1% to 3%.
  • Valuation fees: Valuation fees are charged by the lender to assess the value of the property. They are typically a percentage of the property value, ranging from 0.5% to 1.5%.
  • Exit fees: Exit fees are charged by the lender when you repay the loan. They are typically a percentage of the loan amount, ranging from 1% to 2%.

It is important to factor all of these costs into your calculations when you are budgeting for your development project. You should also shop around for the best deal and compare quotes from multiple lenders before you take out a development finance loan.