Compare Property Development Finance

  • If you need to fund construction, conversion or renovation then a property development loan may be the ideal option
  • Our comparison table below lists a panel of UK commercial lenders that offer property development loans
  • Compare loan terms and amounts currently available and apply direct today.

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Information written by Rhiannon Philps Last updated on 06 May 2022.

What is property development finance?

Property development finance is a type of funding specifically designed to fund commercial or residential property developments. It can be used for a range of projects, including new-builds, conversions, renovations, and more.

The term ‘property development finance’ covers a broad range of finance options. There are specific development loans available, but bridging loans, secured loans, commercial mortgages, and other types of finance can also be used for property development. The option that will be most suitable for your plans will depend on what your proposed development project is and how much it is expected to cost.

How does property development finance work?

When you apply for any type of property development finance, lenders will want to see your exit strategy to show how you will repay the loan. The lender will conduct credit checks and look at the finances of you and your business (if applicable), as well as checking your development plans to make sure that the project stands a good chance of succeeding and returning a profit.

If your application for finance is approved, you may receive your funding in a lump sum or you may receive it in instalments. This will depend on the type of development finance you have and how much you borrowed.

Unlike many other standard loans, typically you won’t need to repay your development loan or make any interest payments each month. Instead, you will usually repay this type of finance (plus the interest) in full at the end of the term once your project is complete.

For example, if you take out a bridging loan, you can use this money to buy the property and renovate it. You can then sell it on and repay the loan. Bridging loans are intended to be short-term, and so wouldn’t be appropriate for lengthy, large-scale projects.

If you are looking to buy a property in order to rent it out, a buy-to-let mortgage is likely to be more suitable than a property development loan.

How do I get started in property development?

If you want to get into property development, research is key. Property development can be risky, so you will need to understand the property market, including what can boost the value of a property, and find trusted professionals who will carry out the work to a high standard.

When it comes to funding, you will also need to have some capital to put towards the project yourself. Most lenders won’t cover the total cost of the development project, so you’ll need to cover the remainder. You may also find it useful to have a back-up source of income or cash reserves, in case your development project overruns or doesn’t go exactly to plan.

Bear in mind that if you are starting out and have little experience in property development, you may find it more difficult to get approved for finance. You may be viewed as a greater risk by lenders, compared to someone with a track record of successful property developments, for example.

What are the pros and cons of property development finance?

The main advantage to property development finance is that you can access relatively large sums of money, which can cater for a range of projects from small-scale renovations to complete building works. Your development project may not qualify for standard loans from mainstream lenders, but specialist property development finance may be able to offer funding.

For example, you are unlikely to get a standard mortgage for a dilapidated property that you plan to renovate, but you may be able to use property development finance instead.

Also, unlike standard personal or business loans, you can repay the loan in full when you sell the finished property. This means you won’t need to worry about making monthly repayments during the project.

However, because property development comes with risk and will often involve large sums of money, the application process can be lengthy.

Furthermore, because you need to repay the loan in full at the end of the term, you may feel pressure to finish your project quickly so you have time to sell and repay. There are options, such as taking out more finance, if you haven’t managed to complete your project and pay off the loan by the end of the term, but this will increase the total amount you need to repay.

How to apply for property development finance

If your planned developments require planning permission, it would be useful to get this before applying for finance. Some providers may be able to offer some funding before you get planning permission – to buy a plot of land or a property, for example – but you will need to have all the necessary permissions to access further finance for your development project.

When you apply, lenders will want to see how you plan to repay the loan, so you will need to show them plans for your project. They will want to know key information, such as the cost of the property and the estimated total cost of the project, as well as how long you expect the work to take.

They may also ask for extra reassurance about the project, such as confirming that you are using professionals and conducting their own independent valuation of the property, and they may want to make sure you have enough funds in reserve to make up any shortfall or unexpected expenses.

Additionally, as with other loans, lenders will check your credit score and the credit rating of your business (if applicable).

How much can I borrow?

The amount that you can borrow through property development finance will depend on the provider, the type of finance you apply for, your financial situation, your credit history, and the project you want funding for.

Loans can range from thousands to millions of pounds.

Providers will generally only lend up to a specified percentage of the total value of the property or the GDV (gross development value). The GDV is the expected return from the project once it is completed and sold.

You would have to fund the rest of the project yourself.

Some lenders may only offer finance for terms of up to a few years, while others will offer loans with longer terms.

What are the fees/costs involved in a development loan?

As with all loans, you will be charged interest on property development finance.

You may face other fees set by the lender. For example, they may charge you an arrangement fee or an exit fee. Lenders may also want to conduct their own valuation of the property, so you may need to pay a valuation fee.

How is development finance repaid?

You will repay most forms of development finance in full at the end of the term. Unlike many other loans, you won’t repay these loans in monthly instalments.

Instead, you can wait until you have completed your development project and sold the property, so you can use the proceeds from the sale to pay off your loan and the interest that has accumulated.

What are the alternatives to finance a property development project in the UK?

If you want to finance small refurbishments of a property, then a short-term bridging loan may be a possible alternative. These are not suitable for long-term projects as they are taken out on the basis that you will repay the loan by selling the property soon after buying it.

Taking out a secured business loan may also be an option. However, if you don’t manage to keep up with repayments, your property could be at risk.

» MORE: How to finance property development

How does NerdWallet’s property development finance comparison work?

Our comparison table allows you to see some of the available finance options which can help to fund your projects. You can see how much finance the lender offers, over what terms, as well as the eligibility criteria for applicants.

Property Development Loans FAQ

Can I get a development loan for land without planning permission?

Many lenders will require you to have planning permission for your project (if it’s necessary) when you apply for property development finance. However, if you are waiting for permission to be granted, you may still be able to apply for a limited amount of funding from certain lenders – to buy land, for example – and then receive more funding when you have planning permission and are ready to develop the site.

How quickly can I receive a property development loan?

This will depend on the lender, the size of your planned works, and how much you want to borrow. Some lenders may pay the property development loan in instalments throughout your project.

Can I get a loan if I buy a property at auction?

Yes, there are specialist finance options available if you want to buy a property at auction but don’t have sufficient funds yourself. The type of property, its value, your plans for the property, and your own financial profile will influence your application.

Can I get a property development loan with a bad credit score?

If you have a bad credit score, you may find it more difficult to get property development finance. However, it’s not impossible. Lenders will look at the project you want to fund and other relevant information to help them make a decision on your application, not just your credit score. You may face higher rates of interest if you are accepted for a loan with a poor credit score.

Should I form a limited company for property development?

This decision is up to you and will depend on your own situation. You don’t necessarily need to set up a limited company for property development but, in some cases, it could make sense to do it. Make sure you research the tax implications of developing and selling property as an individual, and through a limited company.

Are property development finance and bridging loans the same?

Property development finance and bridging loans are not the same, but they can be used for similar purposes. As the name indicates, property development finance is for development projects, whether that’s building from scratch or converting or renovating an existing building. Bridging loans can be used if you want to buy a property, renovate it, and then sell it soon after. However, bridging loans are specifically intended to be short-term so they may not be ideal for larger projects, which will take longer to finish.

Bridging loans can also be used for other purposes, not just property development, such as if you want to buy a house but you haven’t sold your existing property yet.

Can limited companies or partnerships get funding for property development?

Yes, limited companies and partnerships are eligible for property development funding. Eligibility criteria will vary between lenders, so make sure you check that you qualify for funding.

What is GDV?

GDV stands for gross development value, which is the expected value of the project after all the work is completed. Many lenders will offer you finance worth up to a specified percentage of the GDV, so you will need to provide the rest of the cash yourself.

How long do I have to repay a property development loan?

The term of a development loan will depend on the scale and length of a project. For smaller projects, you may need to repay the loan after a few months or a year, while for larger projects you may have more time to repay.

What is development exit finance?

Development exit finance is a specialist type of short-term funding, which you can take out towards the end or upon completion of your development project. You can use exit finance to pay off your original property development loan, to give yourself more time to complete the works and/or sell the property.

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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