A property developer in Surrey looked to secure development finance to complete a part-built development project - the construction of 6 three-bedroom houses.
The developer had been funding the project up to the point of enquiry from profit of previous schemes. However, as construction progressed, there became a need for an alternative source of finance to cover the remaining stages of development.
Part-built developments often pose a challenge when securing financing, as lenders tend to be wary of the potential mismanagement of funds and insufficient control over the stages of construction already completed. Faced with this problem, the developer sought a fast finance solution to ensure the seamless continuation of their project, development finance of £1.2 million over an eight-month period.
The property had a gross development value (GDV) of £4 million, the total finance requirement was £1.2 million, equating to a loan-to-value (LTGDV) ratio of 31%.
What is development finance?
Development finance is a financial product designed to support property construction, renovation, and development initiatives, catering specifically to developers engaged in construction projects.
Here are some of the main advantages of using property development finance…
Versatility: Property development finance supports a variety of projects, such as housing, offices, industrial units, retail units, and other commercial endeavours.
Cost mitigation: Building a property from the ground up is often financially challenging. Development finance offers external financial support, making projects feasible.
Financial benefits: Development finance provides developers with a range of financial advantages, the two main advantages are that:
- Minimises the interest fees accrued through staging the draw downs of each payment in line with the construction schedule - basically you’re only borrowing the bare minimum to get you to the next stage.
- Enables property developers to achieve bigger development projects which without financing wouldn’t be possible.
Property development finance ensured that the developer had the necessary funds to cover development costs, such as contractor payments, material costs - even marketing costs.
By securing the development finance, the developer was able to inject the much-needed capital into the project, preventing any major disruption to the construction schedule. The finance allowed for the timely completion of the 6 three-bedroom houses, transforming what was once a part-built development into a residential community.