Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 4th July 2019 *
Whether you are an experienced builder or a first-time developer, the success of your development project starts with getting the right finance.
There are lots of development finance lenders on the market and some have strict criteria that they require applicants to pass. The good news is that we can put you in touch with brokers who have whole-of-market knowledge, meaning that you don’t have to worry about finding a development finance lender on your own.
In this guide, you’ll find the key information you need to know about development finance lenders as well as where you can go for advice.
For an initial conversation with no obligation or fee, give us a call on 0808 189 2301 or make an enquiry here, and we’ll be in touch.
What makes development finance lenders different to mortgage providers?
Firstly, development finance lenders will insist that the borrower evidences a viable exit strategy in advance, which would usually be the sale of the development or a remortgage. You'll need experience to secure the best deals from most of them, so don't get disheartened if your first project doesn't get the best rate on the market.
Furthermore, you may find that development finance lenders are more forgiving of bad credit than mortgage providers. Adverse is only really an issue if it puts your exit strategy at risk.
Unlike some residential mortgage providers (that usually offer terms of around 25 years as standard), a development finance lender offers the loan on a short term basis, typically between three months to three years.
The lender may consider extending this to allow for the sale of the property or so another exit strategy can be executed. However, it’s important to remember that the loan will accumulate interest which could affect your ability to repay.
A property development lender releases the loan in stages as the building work progresses. As well as this, development finance institutions will likely send an independant specialist to carry out inspections of the site before they will release the next instalment of capital.
They release the capital in instalments to be sure that you are on track and that you are still able to complete the project, ultimately to sell it and pay them back.
Are there residential development finance lenders?
A minority of development finance lenders might consider offering you a loan on a regulated basis to bankroll the construction of a residential property, but most developers who are going down this route are usually advised to seek out self-build mortgage lender instead.
The importance of finding the right development finance lender
We have spoken with lots of developers, experienced and first time alike, who have struggled to find a lender that can offer them a favourable deal. Some have sought advice from brokers who might not necessarily be placed to advise on development finance loans, as they themselves have limited experience in dealing with them.
The wrong advice could end up costing you hundreds, if not thousands of pounds in fees and interest. However, a good broker will consider your circumstances carefully and then compare the lenders before approaching them or advising you to apply.
The brokers we work with can pair customer with the right lender the first time.
What do I need to know about development finance lenders?
We’ve covered many of the key points about development finance lenders’ eligibility criteria in the section above, but below you will find a handy summary of their general requirements.
Experience in property development is looked upon favourably by development finance lenders
The rates they offer are typically higher than mortgage providers’ rates
A development finance lender will require you to have a viable exit strategy, i.e. a means of repaying the debt at the end of the term.
They can be more flexible when it comes to bad credit, unless the adverse puts the exit strategy at risk
They will want to see buildings plans including details on materials used, floor plans and calculations for how much both the materials, equipment and labour used will cost
Most will want you to upfront a good deposit of 30% but will fund up to 100% of the development costs paid in stages in arrears. This means that as well as the deposit for the purchase you'll need around 20% of the build costs too.
If you lack a deposit but have a lot of equity in another property, you could use that as security for the loan. More equity could allow you to get finance to buy more properties allowing you to grow your property portfolio
Will a development finance lender turn me away if I have no development experience?
Most development finance lenders prefer customers to have experience in property development, so if you don’t have a track record in the industry, your choice of lenders could be restricted.
But this doesn’t mean that without experience, you won’t be able to get finance. In fact, there are cases where first time buyers with no property development experience have been approved for finance for a property at auction with only enough to cover the deposit.
This is where a broker’s knowledge of lenders and rates can be invaluable. They will know the lenders who are more likely to accept you and can help you through the application process to make sure there are no errors or mistakes on it that could prevent you from proceeding.
Make an enquiry here and we’ll be in touch to match you with an expert who can help.
Can I find a development finance lender if I have unique circumstances?
It’s common for a mortgage application to have some form of issue that can cause concern for a lender.
Certain circumstances such as being self employed or having ‘bad credit’ can cause ‘red flags’, making some lenders less likely to loan large amounts or loan at all.
Some well-known banks can be quite stringent when it comes to what they will and won’t accept on a development finance loan application. However, there are lesser known, specialist lenders that can be more flexible.
Do you have a specialist that can help me find a development finance lender
Sometimes it just takes an expert with the right experience and know-how to find the right lender for your situation.
The advisors we work with have helped over 68,000 people, each with different situations including:
Don’t let your fears of being rejected for financing stop you from pursuing your plans for property development. Whatever your situation, we will have a professional who can advise you.
Call today on 0808 189 2301 or make an enquiry here and we’ll be in touch to discuss your plans.
What are the best development finance institutions in the UK?
Each development finance institution will have its own specific lending criteria, so whether a lender is best suited for you depends entirely on your situation and circumstances.
One lender may be perfect a borrower with a large deposit and a good credit score, but may be unsuitable and too expensive for a borrower with a smaller deposit or credit issues.
To help you understand how each lender differs, we’ve provided a brief summary of some of the well-known lenders and their position on development finance loans at the time of writing.
For an in-depth understanding of how each lender will assess your application and a detailed breakdown of how much you could borrow and how much it will cost, speak to an expert.
BLG development finance
In general, BLG can be more flexible with regards to what they will and won’t accept on a loan application. That being said, their rates and loan terms can be difficult to access without specialist knowledge.
A mortgage broker will have access to deals and rates that aren’t visible to the general public, so seek advice and know exactly what it is they’re offering before applying direct as this can affect your credit score.
Halifax development finance
Halifax offer development finance loans of up to 90% of the project costs, although your personal circumstances and financial situation can affect the amount that you are offered.
To calculate how much you could potentially orrow with Halifax or any other given lender, speak to a broker.
HSBC property development finance
HSBC have strict eligibility requirements and can ask for deposits as high as 40%.
For some borrowers, this is too unaffordable and not having a large deposit can affect their ability to obtain a HSBC development finance loan.
Depending on your circumstances, it may be possible to get a development loan form HSBC but it’s always best to compare the deals from other lenders before applying.
A broker who specialises in development finance can help you with this. Contact us here and we’ll put you in touch.
Access development finance lender rates
There are lots of lenders offering development finance loans, each with varying terms, loan amounts and interest rates.
Deals and interest rates, in particular, can change over time. This can make it tricky to feel sure that the deal on offer is still running and accurate.
Comparing and checking each lender can take a lot of time which doesn’t bode well if the project is time sensitive.
Using their experience, a mortgage broker can quickly filter out any lenders that aren’t suitable and highlight the ones that offer the best deals.
Here are just a handful of lender rates that are accessible to the brokers we work with:
Nationwide development finance
Natwest development finance
Funding Circle development loans
Close Brothers development finance
1st Gretol development finance
Lloyds development finance
Aldermore development finance
Call today on 0808 189 2301 or make an enquiry here and to ask about the rates of these developments finance lenders.
Get advice about development finance lenders
When it comes to financing your development project, we always recommend that you speak with an expert. There are many factors to consider and questions to ask with this type of finance, and an expert may be able to help you with the following:
Consider whether you need a development finance loan. There may be better alternatives for you such as a bridging loan. A broker can help calculate the overall costs of each option and can recommend the best route for you.
Assess how extensive the project is. Think about how long it will take, and how much it is likely to cost in both the best and worst-case scenario.
Think carefully about your finances. A broker will be able to assess whether a development finance loan is an affordable option for you.
Check the terms and conditions of your loan agreement. Are there any fees for early repayment? Will the interest rate increase after a set period of time? A broker will be able to check for specifics that could affect your future payments.
Shop around. If you approach a lender direct, you will only have access to their products and could miss out on the best deal as a result. The brokers we work with have access to lenders and deals that might not be visible to the public.
Factor in surveyor costs. Many lenders initially look attractive as they offer lower interest rates than their competitors. They may however charge a fee for every re-inspection of which there can be many. They are often more than £1,000 each too. Their higher rate competitor who doesn't charge these fees may be the more cost effective option.
Speak to an expert to find the right development finance lender
If you have questions about development finance lenders and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*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...