Development Finance

Developments Finance requires expertise. Simply put, it is a lending instrument designed to enable borrowers to fund the construction of residential or commercial property. It typically assists borrowers with the purchase of land and cover 100% of development costs in staged drawdowns. Development Finance can be utilised for both new-build and conversion projects.

Loan terms tend to range between 12 – 36 months, and finance costs including interest and fees are rolled up and paid upon sale or refinance of the completed properties.

There are a broad range of lenders that operate in the market, each with varying appetite, credit criteria and pricing structures so it’s important to enlist the advice of a specialist. The factors which lenders base decisions on include but are not limited to:

  • Loan size
  • Leverage [Loan to Value, Loan to Cost & Loan to GDV]
  • Location
  • Borrower Experience
  • Type of Property
  • Construction Method
  • Wider economic factors

Most senior-debt lenders will limit their maximum lending to 60-65% of the Gross Development Value [GDV] which is the value of the completed properties or 80-85% of the Total Project Cost. However, we work with several specialist lenders who can fund up to 70-75% of the GDV or up to 100% of Costs.

We also have relationships with funders that are comfortable lending to first-time developers, provided they are using an experienced contractor.

Interest rates for Development Finance tend to range from 6% p.a. to 14% p.a. on drawn funds depending on the factors listed above.

Mezzanine Loans

Mezzanine Loans act as ‘top-up’ funding for developments which require additional borrowing. A Mezzanine Loan provider will take a second legal charge on the site, enabling the borrower to stretch their borrowing to up to 75% of the GDV when the senior loan is capped lower.

Interest rates for Mezzanine Loans are higher due to their security being ranked behind that of the senior loan, they are generally between 15-25% p.a. but this is charged on a only small percentage of the overall debt, with the vasty majority being at a significantly lower rate.

Equity Finance & Joint Ventures

For experienced developers looking to expand on the number or size of their projects, we work with a range of lenders and investors who can provide the equity required to reduce the developer’s cash injection to as low as zero in some cases.

Equity providers will either require a share of the net profit generated from the development or a fixed-interest return, or a mix of both. We are experienced in assisting negotiations with both parties and can advise accordingly.

To be considered for Equity funding, the project will be required to have a minimum gross profit margin of 25% before finance costs.