Development Finance FAQs
Knowledge Hub > Property Development Finance FAQs
Property Development Finance FAQs
Who can borrow?
We work with developers of all different sizes and experience. Whether you are a first time developer or an experienced player undertaking a large project – we can help find the right solution.
How much can you borrow?
This depends on the nature of the project, its profitability and your background and experience. It will also depend on your appetite for risk and how much you are willing to pay for funds. We can structure deals – including subordinated debt – at up to 90% of the total project costs and if you have other sources of asset security this could even be as high as 100%.
We can also access funding on a joint venture basis when a developer has no cash to put in but has a viable project and a strong track record – where profits are shared with the finance provider.
What interest rate will you pay?
This generally depends on the amount you wish to borrow but rates can start from less than 6% per annum for lower risk projects and will generally be related to the loan to value (LTV) of the project. Our broad market access and relationships mean we can find attractive financing for the right deals.
What other costs are involved?
It is usually necessary for the property, the project Gross Developed Value (GDV) and all development/construction costs to be independently assessed prior to the loan facility being formally approved. These valuations and professional services, as well as legal costs are expenses of the borrower. If you are drawing down the loan in several tranches (as the project develops) further valuation costs may apply.
How quickly can I raise funds?
Our lenders can provide decisions very quickly (often in a day or two) so the valuation and other advisors usually drive the timing. We can work with you to select the right advisers and to ensure the lenders have everything they need to.
Does it matter is there is already finance?
No – we work with lenders who will consider lending on a second or even a third charge basis. What matters is the nature of the project, the quality and value of the security and the LTV. Consent will often be required from existing security holders.
What is GDV?
GDV stands for Gross Development Value, and is the total value you expect to sell all of the properties on your site.
What is LTC?
LTC is loan-to-cost. Expressed as a percentage, it compares the amount you borrow to the total cost of the development.
What is GIA and NIA?
GIA is Gross Internal Area. It refers to the internal floor area of the buildings on a development. If your development has communal spaces - such as lifts and shared entrance halls, the NIA is the Net Internal Area, which is the floor space which excludes the communal areas, and should equal the total floor area available for sale.
What is s106 and CIL?
New developments can put additional pressure on public facilities such as parks, roads, schools and leisure centres as more people are housed in the area.
Planning obligations are put in place to mitigate this pressure. These are commitments made by the developer, in agreement with the local council planning department, and formalised by a legal agreement under the Town and Country Planning Act 1990. The legal agreement is known as a Section 106 agreement and is part of a planning approval.
The S106 Planning Obligation is separate from the Community Infrastructure Levy (CIL), although the two sets of contributions may be used to pay for the same piece of infrastructure.
The planning obligations may be to improve local infrastructure - such as build roads or schools - and/or to make financial or in-kind contributions or to provide affordable housing.
How much s106 or CILs will I need to pay?
The amount of s106 and CIL a developer will need to pay will be negotiated with the local planning department for each development. Although every local council, and county council, should contain guidelines on what should be expected - both in terms of payments and the proportion of affordable housing required on each development.
What is a s106 viability report?
A s106 viability report assesses whether a site is financially viable, by looking at whether the value generated by a development is more than the Benchmark Land Value. This involves looking at the gross development value, costs, existing land value, landowner premium, and developer return; to determine whether s106 and CIL contributions would reduce the developers profit margin below the universally accepted 15-20%. (Source: 2018 Planning Policy Guidance)
For a detailed overview of how councils may consider the viability of a development, you may want to refer to the Greater London Authority Affordable Housing Toolkit (GLA Toolkit).
What is an RP?
An RP is a registered provider. They build and acquire homes to be rented on an affordable basis or to the council, to provide housing to those in need.
Bridging Finance FAQs
How does bridging finance work?
Short-term loans or 'Bridging finance' is typically secured on either a first or second charge basis on an asset with a readily realisable value. This may be:
Freehold or long leasehold property
Land and development sites
Other assets such as jewellery, cars, art etc.
How much can I borrow?
We can arrange finance for anything from £10,000 to £25 million.
How quickly can I obtain the funds?
It depends on the complexity but funds could be in your bank account in 48 hours or less if other professionals (such as valuers can be lined up).
How much will it cost?
Set up fees will generally be 1-3% of the loan amount and interest rates typically range from 6-18% depending on the asset type, your credit history and so on. Rates have been improving over time as the market becomes more competitive so please get in touch to discuss the best terms available.
Do you arrange interest only loans?
Yes – interest only loans are available
Can I roll-up the interest?
Yes – we can access facilities where the interest is rolled up and paid at the end of the loan
What is the different between Open and Closed Bridging Finance?
An 'open' bridging loan is a loan where the exit or repayment method is known but not yet fully formalised (e.g. the sale of a property which is currently being marketed). A 'closed' bridging loan is a loan where the exit or repayment method is fully finalised (e.g. the sale of a property where an exchange of contracts has taken place).