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 enquire about joint venture (JV) development finance. Some of them are ready to apply for it but don’t know which lender to turn to, while others simply want more information about this type of agreement.
Whether you’re a first-time investor who wants to know more about JV development finance or an experienced developer ready to apply for it, you’re sure to find the answers to your questions in this comprehensive guide.
What is joint venture property development finance?
Joint venture finance is a method of funding property development without putting any of your own capital in. The lender provides all of the funds you will need for the initial site acquisition and the construction costs, in exchange for a share of the profits.
How does joint venture development finance work?
It works in much the same way as a standard development finance loan, but the borrower doesn’t need to put down any deposit and the interest rates are generally higher.
Lenders who are willing to offer joint venture development finance usually expect a 40-50% share of the profits and will likely want to oversee the construction process closely. Most providers will set up a special purpose (SPV) vehicle that both parties are involved in to cover the ownership of the completed property and hold the liability.
As is the case with most development finance loans, the construction funding is portioned out in staged drawdowns, and the lender would usually carry out a site inspection before each instalment is released, to make sure the building work is on track.
What is the eligibility criteria for joint venture development finance?
Not all development finance lenders are comfortable entering joint-venture agreements, and the ones which are usually judge applications on a case-by-case basis.
That said, it will make you a more eligible borrower if you meet the following criteria…
Have a strong exit strategy: You’re unlikely to get any kind of development finance loan without a viable exit strategy. In this case, it would usually be the sale of the scheme based on its post-development value, so it would no doubt help your cause if you have an agreement in principle in place ahead of the application.
Strong profitability forecasts: JV finance lenders will expect to see a solid business plan outlining profitability forecasts (a profit margin of at least 25-30% is usually the minimum requirement). Some lenders will want the scheme’s gross development value to be at least £1 million, while others will expect £2 million.
Industry experience: Joint venture development finance is usually only offered to experienced developers with a strong track record in the industry. However, first-time investors with a strong business plan may be considered case by case.
Clean credit: Bad credit is usually only a deal-breaker if it puts the exit strategy at risk, but developers will a spotless credit profile are generally considered lower risk.
Planning permission in place: Most joint venture lenders are unwilling to take planning risks, so having outline planning permission in place is often a requirement.
What are the benefits of joint venture finance?
The main benefit of joint venture development finance is that you don’t need a deposit. For some borrowers, this will mean they can get a project off the ground very quickly, since they won’t need to spend any time raising upfront capital for the deposit.
Although you’re required to share the overall profits with the lender, you would recoup a small percentage of that by saving on legal fees, as only one set is payable for JD deals.
Is joint venture the only way to get 100% development finance?
No, there are other ways you might be able to convince a lender to offer you 100% of the capital you need for the site acquisition and the development work.
Another option would be to put up extra security. Some lenders will offer 100% development finance to borrowers who can secure the loan against other properties or assets they own and hold equity in.
The drawback here is that you run the risk of multiple repossessions if the project was to stall or the exit strategy fail. Make an enquiry to speak with an advisor if you’re concerned about this. They can weigh up all of the risks and suggest the best course of action.
How do I apply for joint venture development finance?
Since your choice of approachable lender will be fewer for joint venture compared to a borrower who’s going it alone, the best way to find the best deals with the most favourable rates and profit share terms is to apply through a whole-of-market broker.
The advisors we work can provide you with bespoke advice on development finance and pair you with the lender best positioned to offer you a favourable joint venture deal.
Speak to a JV development finance expert
If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry.
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!
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