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Home » National News » All About Development Finance

All About Development Finance

Lancashire Gazette by Lancashire Gazette
June 27, 2022
in Featured News, National News
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All About Development Finance
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The development finance option is quick-term financing option that typically lasts between 6 and 24 months. It is specifically designed to aid in the costs of purchasing and building costs of the development of a commercial or residential project.

It could be a brand construction project, conversion or refurbishment that covers one unit to multiple units that are built over multiple phases.

A development loan can be described as two parts.

1. To buy the website

The first part of the money will usually be used to help with purchasing the land for development. It could be land on which several new homes are planned or an existing home that is undergoing a renovation.

2. To pay for the building costs

The second phase of the loan is to cover the cost of building works that are associated to the project. The loan is typically done in stages instead of being offered in one lump sum from the beginning. This usually happens every month, as work is done on the work.

How much money is available?

The amount of funds that is available is determined by an expert valuation report which will include three key numbers:

Current value – i.e. how much value is placed on the property in conjunction with the planning process or the value of the house prior to refurbishment
Costs of construction
Gross development value (GDV) – i.e. what is the worth of the finished property(s) assuming that all construction works are been completed.

Each lender will have its specific lending criteria that determine the maximum amount that can be loaned. Some lenders will lend the equivalent of 65% actual value and 100percent of construction costs for development loans.

Each project is evaluated separately however, the funding needs to be organized in a manner that ensures that there is enough money available to finish the building in all the totality.



Are there any additional charges associated for development financing?

The lender will charge interest and fees for the Loan , the amount determined by the following:

The amount borrowed
Percentage of the loan against the total cost (i.e. the total cost) i.e. the current value and construction costs rolled into one
The loan’s term is what it’s needed to be used for.

What is the most commonly used term to describe Development Finance?

The majority of development loans will be for between 24 and 30 months. However, this will depend on the type of scheme that is being that is being funded.

A simple renovation loan could be required for a period of 6 months, while an entire new construction project could take up to 24 years. The duration of the loan allows time for the home to be constructed, bought, and later sold or refinanced to pay off the debt.



Utilizing the use of an Independent Monitoring Surveyor (IMS)

After a project has been completed in operation, the construction is the cost of the loan. is paid back in phases (usually every month). The amount drawn down will be based on the amount of construction work that was completed during the month. The advantage of drawing amounts down monthly is that you’ll only be paying interest on the amount you’ve drawn down at the moment in time.

The IMS will serve as the eyes and ears in the process for the Lender to ensure that the projects are on track and within budget, and will alert any potential problems. They will act on behalf of the Lender However, their expenses will be borne by the lender.

How can you pay back the development loan

There are a variety of ways the borrowers are able to pay back Development Finance loans:

Pay the entire amount with proceeds from the sale of the property(s).
Refinance to an extended-term loan when the borrower wishes to keep the construction for themselves, or lease out.
Refinance by using the Development Exit Bridging Loan to increase profits at a lower cost and, in the future, fund a new project without waiting for the sale of your current project.







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