What is a Property Development Loan?
A property development loan is a financial product designed to fund the construction, conversion, or refurbishment of real estate properties. Unlike traditional mortgages, these loans are typically short-term, covering the duration of the development project.
Key Stages and Funding Requirements
Land Acquisition:
Deposit: Most lenders require a significant deposit, usually 35-40% of the land purchase price, especially if planning permission is already in place.
Construction Phase:
Progress Payments: Lenders often release funds in stages, tied to specific milestones in the construction process.
Site Inspections: Professional surveyors monitor the project to ensure work is carried out to the required standard.
Funding Limits: The maximum loan-to-value (LTV) ratio can vary, but many lenders will fund up to 100% of the build costs, with a cap on the total funding as a percentage of the Gross Development Value (GDV).
Completion and Exit:
Repayment: Once the development is completed, the loan can be repaid through the sale of the units or by securing a long-term mortgage on the completed property.
Releasing Equity: If the project’s estimated rental income is sufficient, it’s possible to release up to 70% of the GDV, covering the loan and potentially generating profit.
How We Can Help
At Cornerstone, we specialize in presenting development projects in the most favorable light to lenders, securing optimal terms for our clients. When packaging a development case, we always look to address the following:
Developer Experience:
Seasoned Developers: We highlight the proven track record of experienced developers to instill confidence in lenders.
First-Time Developers: For newcomers, we emphasize the strength and expertise of the construction team to mitigate risks.
Business Plan:
We provide working business plan templates for you to complete. These break down costs, show timescales for each stage, and realistic end valuations, which lenders are expecting to see. We even sense check the figures for you!
