What is property development finance and how does it work?

The title is largely self-explanatory. Developing property is a hugely popular route to go down, but it’s also a very costly one as well. Assuming that you have the option of using your own funds, investing your personal cash to fund a development, whether it’s developing a new site, or refurbishing your old flat to sell and move on to your next one, is a risky business and one which you cannot afford to fail. When you’re funding property development yourself, you need to have enough cash to invest upfront, enough cash to ensure the project goes smoothly and enough cash to cover your personal expenses whilst the build is going on. Development finance provides a way for you to avoid all of that and largely reduce the risks you might face (see the Brickflow development finance guide)


On a straightforward level, property development finance is a short term loan for those who are doing construction projects, such as renovation, conversion, refurbishing and building. There’s usually an upfront sum available that you can request on Day 1, roughly 65% of the total loan, and this can be used to purchase the land/property or pay off existing loans and consolidate your expenses into one place. After that, the loan will be given in monthly instalments as the project gets underway. It’s a simple, straightforward solution for short term cash needs.

However – there are a few issues to be addressed before a financing decision can be made.

How do you go about getting property finance?

Once your project has been confirmed as a viable venture, the property developer can then apply for finance if that’s the route they want to go down. Most developers do because it’s comparatively rare to have enough personal cash reserves to fund a development entirely. Plus the inherent risk to the developer’s personal cash flow and necessary expenditure during the construction and sale phases.

High street banks do offer this sort of funding, but it isn’t their main lending profile and interest rates are very likely to be a lot higher, possibly prohibitively higher. It’s best to approach a specialist lender who can offer the right sort of rates and come up with a finance package tailored to your needs.

How easy it is to secure this finance depends a lot on the developer’s professional profile. If they have a strong, proven success in developing property then it’s usually relatively straightforward. Lenders like to reduce their risk as much as they can and having an applicant who has been there, done that before is a huge plus. In addition, an experienced developer might have funds from previous builds to invest upfront. Similarly, if a developer isn’t that experienced, but they do have an experienced, professional team behind them to oversee the project, that can also help the finance figures.

The basic qualifying criteria always apply, such as having a good credit history which is the case for almost all professional finance arrangements. For the lender it’s all about reducing the risk and ensuring that they get the maximum return on their investment. It’s a long process to be approved for finance, but the benefits of having it in place do mitigate this.

Short term property finance is usually given between £100,000 and £2,500,000. Repayment is agreed for the end of the loan term, either through sale/renting or by re-financing through a mortgage or a similar facility for more long term debt. The loan will be a secured one, most often against the development property or development site.

Cost of the loan

Here, there are several determining factors to take into account:

  • The purchase cost or value of the property or proposed development.
  • The upfront costs involved; things like legal fees, stamp duty, introduction fees, etc.
  • The cost of the refurbishment or construction.
  • Any fees relating to the design team; monitoring surveyor, engineer, architect, insurance, warranty, building regulations, etc.
  • SO1 approval. This is a legal agreement between an applicant seeking planning permission and the local planning authority. It’s used to mitigate any impact on the local community and infrastructure as a result of the construction process.
  • Marketing and sales; show homes, brochures and agents fees, etc.
  • Finance (interest and fees for the loan)

There is usually a degree of flexibility with a property development finance loan. The term can be anything between 3 months to 4/5 years, but the normal length of time is 6-18 months. Once an initial sum has been given – if requested and approved – further payments are given monthly, subject to approval by an independent monitoring surveyor. This is done on behalf of the lender but the cost of an IMS falls to the buyer. The surveyor will be checking that things are being done correctly, within the agreed timeframes, that the work is of a good standard and they will also be keeping an eye out for any problems that have arisen. Once they’ve signed it off, funds equal to the amount of work done that month are released to the borrower.

As far as repayment goes, it’s a pretty straightforward process being that it will have been agreed to be at the end of the loan term. However, some lenders will also allow a window of extension of a couple of months at the end of the term for any unexpected delays, or for extra time needed to secures sales, etc. This isn’t something which should be assumed, though, and it’s down to the individual lender whether they offer this facility.

On a slightly different tangent, with the rise of the number of very popular new builds being constructed, statistic suggest that 70% of people surveyed would choose a new build property. This in turn then brings confidence in the industry overall and lenders are more secure about issuing loans.

Once an offer of finance has been made and accepted, the lender can then begin the formal process of releasing the money. Any paperwork relating to the loan is usually handled by the respective solicitors for lender and purchaser.

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