Insightful Information
Welcome to our Frequently Asked Questions page. This page has been created to provide you with answers to the most common questions we receive from our valued customers. Our aim is to make it easy for you to find the information you need quickly and efficiently. If you are unable to find what you are looking for, please do not hesitate to contact us and we will be more than happy to assist you.
How Does the Development Finance Process Work?
Development finance is a crucial tool for enhancing infrastructure, housing, and commercial properties, driving economic growth, creating jobs, and improving regional well-being. Here's a breakdown of the process:
1. Project Identification: The journey begins by selecting a project that aligns with the goals of local authorities or private investors. Projects can range from new housing developments to transportation upgrades and urban revitalisation.
2. Feasibility Study: A detailed analysis evaluates the project's economic viability, potential risks, and benefits. This includes financial forecasts, market research, and a cost-benefit assessment to determine if the project is worth pursuing.
3. Exploring Financing Options: Developers explore various funding sources, which can include public funds from entities like the National Infrastructure Commission or private investments from banks and other lenders. Often, a blend of these sources is used.
4. Planning and Approval: Securing necessary permits and clearances from local authorities is vital. This ensures compliance with regulatory and environmental standards.
5. Securing Financing: Once approvals are in place, developers obtain funds from public grants or private sources, such as specialist lender loans or equity investments.
6. Project Execution: With financing secured, construction begins, guided by effective project management to maintain timelines and budget. Ongoing quality control ensures the project meets all standards.
7. Monitoring and Evaluation: Continuous assessment tracks progress and evaluates community impact. Adjustments are made as needed to overcome challenges and meet project goals.
8. Completion and Operation: Upon completion, the project becomes operational. For example, housing developments open to residents, or new transport systems become available for public use.
9. Post-Implementation Review: This long-term evaluation assesses the project's success in achieving its objectives and its lasting impact on the community.
Advantages Of Development Finance
When Should I Start the Loan Application Process?
Begin your loan application process once you have secured the land and have a clear understanding of the costs and projected values. Contact us to discuss your development plans and explore the best financing options tailored to your needs.
What Do I Need for My Loan Application?
To apply for development finance, you will need:
-
Current property value (if applicable)
-
Detailed cost breakdown for the project
-
Contingency plans and associated costs
-
Estimated project timeline
-
Anticipated end value of the development
-
Developer's experience with similar projects
-
List of involved professionals (e.g., builders, architects)
-
Copies of planning permissions and building regulations
-
Awareness of any planning restrictions or Section 106 agreements
What Are the Stages of Applying for Development Finance?
Applying for a development loan involves several stages:
1. Initial Inquiry: Contact us after securing land and planning permission.
2. Indicative Terms: Receive a brief overview with terms from the lender after consultation.
3. Agreement in Principle: The lender outlines the finance offer, subject to conditions.
4. Site Visit: The lender visits the site and meets involved professionals.
5. Valuation: A professional surveyor assesses property value and project viability.
6. Offer: The lender underwrites the application, confirming contract terms.
7. Completion: Funds are released, and the project commences.
How Much Can I Borrow?
The loan amount varies based on the project's nature and your financial needs. We tailor the financing structure to align with your requirements.
Types Of Security A Lender Can Take:
First Legal Charge
​A first legal charge, or first charge mortgage, is the primary claim against your property. It takes precedence over any other mortgages. If the property is sold or refinanced, this mortgage is paid off first. Typically, the loan used to purchase the property is secured by this first charge.
Second And Third Legal Charge
​A first legal charge, or first charge mortgage, is the primary claim against your property. It takes precedence over any other mortgages. If the property is sold or refinanced, this mortgage is paid off first. Typically, the loan used to purchase the property is secured by this first charge.
Personal Guarantee
​A first legal charge, or first charge mortgage, is the primary claim against your property. It takes precedence over any other mortgages. If the property is sold or refinanced, this mortgage is paid off first. Typically, the loan used to purchase the property is secured by this first charge.
Debenture
​A first legal charge, or first charge mortgage, is the primary claim against your property. It takes precedence over any other mortgages. If the property is sold or refinanced, this mortgage is paid off first. Typically, the loan used to purchase the property is secured by this first charge.
What Costs Are Involved in A Development Loan?
Consider these costs when taking out finance:
-
Setup Costs: Typically 1% of the loan amount, added to the total repayment.
-
Exit Fees: Around 1% of the total loan or project value.
-
Interest: Monthly interest increases as funds are drawn. Often rolled up into the loan.
-
Professional Fees: Costs for architects, builders, solicitors, etc.
-
Contingency Costs: Funds set aside for unexpected expenses, usually 15%-20% of total costs.​​
What Building Regulations Need Consideration?
Compliance with building regulations and obtaining necessary planning permissions is essential. You are responsible for adherence, whether personally or through contractors, and may face enforcement if regulations are not met.
Is Planning Permission Needed?
Yes, planning permission is required for development projects:
-
Outline Planning Permission: Initial approval without detailed plans, valid for 3-5 years.
-
Approval of Reserved Matters: Finalizes outstanding development details.
-
Full/Detailed Planning Permission: Required for detailed plans, allowing immediate commencement upon approval.
-
Section 106 Agreements: Legally binding agreements to address necessary development issues.
What Are the Stages of Development Finance?
Development finance involves multiple stages, from planning and purchase to construction and eventual sale, ensuring a comprehensive approach to project completion.
How Is Development Finance Calculated?
Calculating development finance involves evaluating the project's financial needs and structuring the loan. Different lenders use varying criteria based on project specifics and associated risks.
How Much Can You Borrow with Development Finance?
The borrowing amount depends on factors such as lender policies, project specifics, and risk assessments. The loan-to-value (LTV) ratio typically reflects the percentage of total development cost (TDC) financed.
Do You Need a Deposit for Development Finance?
Yes, a deposit or equity contribution is usually required, representing the developer's stake and aligning interests with the project's success.
How Do You Secure Development Finance?
Securing finance involves strategic planning, thorough documentation, and partnering with lenders specializing in property development funding.
What Is A Development Finance Assessment?
This assessment evaluates a project's potential success and risks, aiding lenders in deciding on financing terms and conditions.
What Are NHBC, Architect Certificate, and Build Sign Off?
Professional checks ensure adherence to building regulations and quality standards throughout development, often conducted by architects or the NHBC.
What Is the NHBC?
The National House-Building Council (NHBC) provides warranties and insurance for new homes, ensuring quality standards.
What Is a Fixed Price Contract?
A fixed price contract with builders locks in costs, protecting against unexpected expenses. It offers peace of mind and can attract lender interest.
How Do Property Developers Raise Money?
Beyond development finance, developers may use Second Charge Mortgages, Buy-to-let Mortgages, Bridging Loans, or seed funding, depending on the property's purpose.
What Is the Exit Fee for Development Finance?
Exit fees range from 1% to 2% and are charged as a percentage of the loan amount or total development value.
Is It a Good Idea to Refinance a Loan?
Refinancing can be advantageous for accessing cash or achieving financial goals, providing flexibility and protection in challenging times.
Do I Need a Solicitor for Development Finance?
A solicitor is essential for navigating legal processes. Ensure they have experience with development finance to avoid delays.
