Simple Commercial Finance

Property development finance has also been hit very hard in recent times and as such an applicants experience is very important to the proposal along with a strong development plan.

Also the lenders are very particular about the type of development preferring houses to flatted developments.

In addition to Buy to Let and Commercial mortgages, we also specialise in property development finance for both residential and commercial property developments ranging from multi million commercial property developments to residential property developments costing tens of thousands of pounds.

Rates and gearing will of course differ dependent on the applicant's experience, the industry sector and the nature of the proposal but a good benchmark to consider would be Bank Base Rate + 2.5% to 5%.
Property development finance is usually arranged on an interest only basis and the term of the loan can be one year plus depending on the size and nature of the underlying project.

Loan to project costs will be influenced by projected gross property development values but funding would typically be in the region of 50% to 70% of the Gross Development Value.

It may be possible in some instances to organise a loan to finance up to 100% of the property development costs where the borrower already owns the land on an unencumbered basis.

Where the property developer is able to improve the planning consent post acquisition, we can access increased levels of funding which recognise higher land and gross development values.

In the current climate the maximum senior debt finance achievable will be up to 70% of total costs. However the ability to re-gear finance against planning gain/enhanced value at the project end, therefore vastly increasing finance potential should not be ignored.

Thus it is possible to finance on the increased value of the property post development.

Simple Commercial Finance Ltd are also specialists in both Buy to Let and Commercial mortgage markets thus in most instances long-term property finance can be arranged to provide an 'exit' from the initial, short-term development finance which of course may be more expensive than the longer term debt.

For commercial development schemes we can source finance with pre-lets, on pre-sales, or development for owner occupation.

Crucially, we provide full assistance with initial residential and commercial property development appraisals, to ensure projects are viable to development lenders.

Typically, commercial and residential property development mortgages arranged by us for clients start from £100,000 with no upper limit

Interim or Bridging Finance

This is simply a high-interest short-term finance facility specially designed to "bridge the gap" until a purchaser can get a permanent long-term financing facility.

It is best suited to a borrower who has an opportunity to make a quick profitable deal, provided they can produce a sizeable amount of money quickly and they have a clear exit strategy i.e. sale, remortgage.

This type of funding is also helpful when making a bulk purchase of an item, which can be sold again quickly, at a sizeable profit. The short-term bridging monies allow you to make the purchase then sell the goods and pay interest on the capital for the short period it was first being used. Interim financing usually needs to be arranged well in advance of its use, to ensure funds will be available precisely when they are required.

Whilst more expensive than conventional (long - term) mortgage debt it offers a quick and efficient solution for many and when utilised in the right circumstances is a highly effective form of finance for property acquisition.

Example of 100% Development Funding

The following requirements need to be met to obtain 100% development finance:

• Full detailed planning permission (not outline)
• Experience in field i.e. established contractor with own insurances
• Detailed development plan
• House insurance to be provided for 10yrs after construction
• Quality location and housing project
• The following example is based on a land purchase price of £500,000 with 10 houses being built. The houses will be valued at £250,000 each after construction.
• Gross Development Value = 10 x 250,000 = 2,500,000
• Gross Development Value = £2.5m
• Available Borrowing = £2.5m x 60% = £1.5m
• 1.5m - 0.5m (land purchase price) = £1m for development
• Cost of construction for one 4-bedroom house = £90,000
• Cost of construction for ten 4-bedroom houses = £900,000
• £1m - £900,000 = £100,000 for fees and other costs
• Profit = £2.5m - £1.5m = £1m