100% Development Finance Explained

If you’re looking for funding for a new property project – either for residential or commercial development – but don’t have any money upfront, you’re probably wondering if you can get development finance without the need for a deposit.

While it’s definitely not easy, it can be possible to get 100% development finance in the right circumstances and with the help of a specialist in this field. In this article, we’ll look at how to go about it, how your experience plays a role and what other options you may have.

Can development finance cover 100% of your construction costs?

Yes, it’s possible. Whether you’re branching out on your first solo development project or have several under your belt but lack the cash flow, there are ways to cover all your costs without a deposit.

One way to do this is through an arrangement known as joint venture development finance. Many lenders will use the terms ‘100% development finance’ and ‘joint venture development finance’ interchangeably, referring to the same scheme.

As the name suggests, joint venture development finance is essentially a joint venture between the developer and the lender. The lender agrees to fund the total cost of the development, taking on all of the financial risks, in return for a share of the profits once it’s complete. Often, this is a 50/50 split, but it can vary. Some lenders, for example, will charge rolled-up interest on the loan in return for a smaller cut.

The joint venture partner will usually take an active role in overseeing and advising on the development, and finances are typically managed via a special purpose vehicle (SPV). This sort of finance suits large projects and experienced investors – most lenders will be looking for projects with a gross development value (GDV) of over £1 million and healthy profits of 25%+.

Will this be possible if you have no experience?

It will be much more difficult to get 100% development finance if you have no experience at all, as you’ll be perceived as a much higher risk to lenders. Most joint venture finance partners will require you to have successfully completed at least one development of a similar size and scope, sometimes more. With such large sums on the table, lenders need to know that you have the skills and experience to make a profit.

This isn’t to say that it’s impossible, but if you are looking for 100% lending with no experience, then you will definitely need support from a specialist broker, as you’ll be looking at very niche lenders with a high appetite for risk.

How to get a 100% development finance loan

To give yourself the very best chance of your successful application, there are a few things you’ll need to get in place before you start.

1. Get matched to a specialist mortgage broker

We can help you get matched to a specialist broker who can identify potential lenders and compare and negotiate the best rates and terms on your behalf. A good advisor, such as the ones we work with, should have existing relationships with these specialist lenders and be able to guide you through the process.

2. Prepare your business case

It’s absolutely key to present a potential lender with a robust business case demonstrating your experience, the viability of the scheme, and the projected profits.

As part of this, you’ll need to include your exit plan—this is key as lenders will want to see clearly how they will get their money back upon completion of the project.

3. Get planning permission agreed

A joint venture partner will only consider projects with detailed planning consents already in place. You must obtain these before you make your application, so you will need to fund them yourself.

Will this be possible if you have no experience?

It will be much more difficult to get 100% development finance if you have no experience at all, as you’ll be perceived as a much higher risk to lenders. Most joint venture finance partners will require you to have successfully completed at least one development of a similar size and scope, sometimes more. With such large sums on the table, lenders need to know that you have the skills and experience to make a profit.

This isn’t to say that it’s impossible, but if you are looking for 100% lending with no experience, then you will definitely need support from a specialist broker, as you’ll be looking at very niche lenders with a high appetite for risk.

Will you get better rates if you put down some deposit?

Yes, probably. Borrowing any kind of money is always about risk; the higher the risk, the higher the rates you’re likely to be offered. If you can reduce the amount you need to borrow by putting in more of your cash, then you may be able to find more competitive deals.

Which lenders offer 100% funding?

You won’t be able to pop into your local bank for 100% loan-to-value development finance; you’ll need a very specific type of lender or even a private investor—the sort that doesn’t necessarily advertise themselves widely. Because 100% development finance packages are always put together on a bespoke basis, rates and terms will always vary, and it can be difficult to compare offers.

This is where your specialist broker will really prove their worth. They will use their market experience and existing contacts to find you the finance you need.

Other options for developers with limited or no deposit

Joint venture development finance isn’t the only option if you have very little or no deposit, so if you don’t think it’s an option, then it’s still worth talking to an advisor, as there may be other ways to secure the money you need.

Private investment

If you have a good track record and the development is strong, you may be able to attract private investment. This could be for the entire project or with other finance, where the private investor just provides the deposit you don’t have.

Equity release

If you have a portfolio of properties, you may be able to remortgage one or more of them to release enough equity for a deposit on your development project.

You may even be able to use your own home to release equity.

Offer additional security

An alternative to releasing equity from other properties is simply using those assets as extra security. This can help reduce the risk for potential lenders, as their loan will be secured against existing properties and the future value of your development.

Get matched with a development finance specialist

If you’re confident in your development plans and ready to take the next steps, it’s time to get yourself matched with a development finance specialist. Finding the right person for you doesn’t have to be a chore, as we offer a free, no-obligation matching service based on your circumstances and unique needs.

Give us a call on 0330 818 7026 or make an online enquiry, and we’ll assess your financial situation and arrange a call with the advisor we think is the right match for you.