Financing your project
Type of work
A heavy renovation or refurbishment of an existing property will usually involve more work such as rebuilding external walls, adding an extension or modifying structural internal walls. It can also involve large scale plumbing and electrical work such as adding or relocating a bathroom or a complete rewire of the property.
At the top of the scale is a ground up development, starting with just a piece of land, a recently demolished building, or an old property that is merely a shell with only the masonry intact. Definitions of work vary somewhat; one developer’s light refurb might be another’s major project, so it’s important to be clear as to what you want to achieve and what work this will involve. Professionals such as architects can help you translate your vision into a practical project.
Types of loan
When it comes to carrying out building work or renovations, you’ll need development finance. This is intended to finance building costs over a relatively short period - usually between three months and two years - but it can often be converted into a mortgage at a later date.
You may find that lenders will be willing to finance a proportion of the purchase price and a proportion of the build, so you would only need to find a part of the costs yourself.
How much can you borrow?
Development finance lenders usually allow for the loan to be drawn down in stages as the project progresses. It’s also the case that the developer’s own contribution will be the first to be used with the loan kicking in afterwards. The drawdown of loan funds will usually be on the basis of completion certificates provided by the project architects.
As an example of how this might work, a development with a GDV of £4 million might cost £1.5 million for land and another £1.5 million for development, making a total of £3 million. A lender, therefore, might be willing to lend £2.25 million in total which is 75 per cent of the development cost.
Where the developer already owns the land outright, it can be possible to get a property development mortgage for 100 per cent of the development costs.
Length of loan
It can be possible to roll the interest payments up in the loan. This means that no repayments are necessary during the loan term; you simply repay the whole lot at the end.
Before you start to look for developer finance it’s a good idea to have the project in place with planning permissions agreed so that you are prepared to commence quickly once the loan is agreed. This reduces the risk that you will be paying interest on a loan before the project has commenced.
We will do our best to match you with the right lender for your project. In order to do so there are some key pieces of information it’s useful for you to have to hand before you contact us:
- What is the total cost of the project?
- How is this split between purchase and development?
- What is the estimated GDV on completion?
- How soon do you need the loan?
- How long do you need it for?
- Do you already own the site or property?
- What planning permission do you need / do you have it already?
- Has building work already commenced?
- How long is the work going to take?
- Do you have previous property development experience?
Because we play by the book we want to tell you that...
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.