Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 11th September 2019 *
Customers often get in touch with us to ask whether it’s possible to get a development finance loan that will cover 100% of their project’s costs. While most providers cap their lending based on gross development value (GDV), there are workaround solutions for developers who need to borrow more, and this guide will tell you all about them.
For the best advice on how to secure a 100% loan-to-value property development finance, get in touch. The experts we work with have experience in securing this type of finance, and they can find the best deals to suit your personal and financial circumstances. Call us on 0808 189 2301 or make an enquiry online.
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This could be possible, although most development finance providers cap the amount they’re willing to lend based on the project’s gross development value (GDV), i.e. how much it will be worth on the open market. However, there are circumstances where this rule doesn’t apply.
The majority of lenders will offer eligible borrowers 70% of the funds they need for the initial site purchase and 100% of the development costs, released in staged drawdowns (usually subject to site inspections) as the building work progresses. In order to achieve up to 70% of the funds, you will have to demonstrate a track record in development finance.
If this is your first development project, the lender will usually require you to contribute 50% towards the purchase of the land.
However, there are scenarios where lenders might be willing to let you borrow all of the funds you need, even if you have no deposit - read on to find out what they are.
How can I get 100% development finance?
While some lenders might offer you a development finance deal based on 100% of the loan to cost (LTC), i.e. how much the construction work will cost, there are others who may stretch to offer you 100% of the overall capital needed, but only in specific circumstances.
The two main ways you could convince a lender to offer 100% development finance are by putting up additional securityor entering a joint-venture agreement.
What type of extra security can I put up?
To get a 100% development finance deal, most lenders will want you to secure the loan against another property, more than one property or valuable assets you own and hold sufficient equity in. With this criteria met, getting capital with no deposit may be possible.
Agreements where multiple properties/assets are used as security can be risky for the borrower because, if the exit strategy fails, you could end up with multiple repossessions.
For bespoke advice about development finance security, get in touch and the advisors will help you weigh up the level of risk and suggest ways you can safeguard yourself against it.
Joint venture development finance
Some development finance lenders might be willing to offer you a 100% deal if you enter a joint venture agreement with them. This is where the provider offers 100% of the build and purchase costs in exchange for a profit share at the end (usually 40–50%).
It’s common practise for the lender to set up a special purpose vehicle (SPV) that both parties are involved in and oversee the construction process closely.
This is often a viable way to secure development finance without a deposit, but most lenders charge interest at a higher rate for joint venture deals.
Can I get 100% residential development finance?
Your choice of lenders will be fewer if you need development finance for a residential project, as Financial Conduct Authority (FCA) permissions are usually more difficult to obtain in this sector. However, there are a minority of providers who offer it for this purpose with certain caveats attached, such as terms of no longer than 12 months.
A 100% development finance deal for a residential project would only be possible through a specialist lender, and the borrower would likely be required to put up extra security or enter into a joint venture agreement with the provider to lessen the amount of risk.
Under such niche circumstances, it’s always recommended that you consult with a whole-of-market broker before proceeding, to make sure you end up with the most favourable rates. Make an enquiry and we’ll put you in touch with someone.
Can I get an 80% development finance deal?
While most lenders are more comfortable offering development finance capped at around 70% GDV (gross development value), there are specialist providers who might stretch to 80%, under the right circumstances. Putting up extra security as well as a deposit might help.
Some lenders would consider this type of deal to be higher risk, so it’s important that you meet their eligibility criteria as closely as possible, to convince them it’s viable.
Development finance eligibility criteria
As development finance applications are usually assessed on a case-by-case basis, there’s always a chance a provider with a high appetite for risk will consider adjusting the percentage of the costs they’re willing to cover if you meet their eligibility criteria.
Most lenders prefer customers with the following…
A strong exit strategy: You’re unlikely to get a development finance loan without a strong exit strategy, and this would most commonly be a sale or a remortgage. The more confident the lender is that your exit will cover the loan plus interest, the more likely they are to let you borrow the amount you need at a favourable rate.
A healthy deposit/good security: Having a good, sellable property to secure the loan against can minimise the level of risk, as can putting down extra deposit.
Clean credit: Bad credit is usually only a deal-breaker for development finance lenders if it puts the exit strategy in jeopardy, but if your credit history is flawless, this can help convince the lender that you’re low risk.
Industry experience: Although there are development finance loans for new investors, having a strong track record in property will usually help convince the lender that you’re capable of achieving your plans.
Above all, the lender will be keen to see that the investment is viable, and they will assess that based on the above factors along with other variables, such as the scheme’s location and the projected operating performance (if it’s a commercial venture). Some lenders will also expect you to produce a business plan before rubber stamping the deal.
Speak to an expert about your project’s gross development value (GDV)
If you have questions about how to secure 100% development finance and want to speak to an expert for the right advice, call us today on 0808 189 2301 or make an enquiry here.
The mortgage brokers we work with have whole-of-market access, meaning that they can source the best deal for your personal and financial circumstances.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...