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What is Development Finance?

 

Property Development Finance is a short-term loan used in the development of a property or a series of properties, including residential, commercial, or mixed-use properties.

 

This type of finance is typically used by property developers or builders to cover the costs of construction, development, or refurbishment of properties. The loan amount is usually based on the projected gross development value (GDV) of the project - that is, the estimated value of the project once completed.

 

Here's a brief overview of how it works:

 

1. Application: The developer applies for finance, providing details about the project, including cost estimates, projected timelines, and expected profits.

 

2. Assessment: The lender assesses the viability of the project, the developer's experience, the market conditions, and the potential risks involved.

 

3. Approval: If the lender is satisfied with the project's potential and the developer's capacity to deliver, they approve the loan, usually as a percentage of the project's total cost or the GDV.

 

4. Drawdown: The funds are typically released in stages, aligned with the project's progress. For example, a portion may be released to purchase the land, another to start construction, and so on.

 

5. Repayment: The loan is usually repaid either at the end of the term in a lump sum, often from the sale of the developed properties, or refinanced through a longer-term loan product, such as a commercial mortgage.

 

It's important to note that Property Development Finance is a specialist type of funding, and it typically involves higher interest rates and fees than other types of loans due to the higher risks associated with property development. It's also usually a short-term solution, with loan terms typically ranging from 6 months to 24 months.

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