Property Development Finance

Property development requires specialised financial solutions, and the UK’s development finance sector provides a variety of highly flexible funding options


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Property development is a key, highly competitive sector of the UK’s real estate industry. Property development can consist of an enormous variety of different projects, from the construction of a single home to an entire estate, the refurbishment of an old office block to the creation of a brand new one. Projects like this can range in size and scope to an almost unlimited degree, and the developers who work on them need to have a large amount of capital on hand to push their projects through to completion.

The demands of property development have led to the creation of an entire specialised lending sector that caters specifically to the needs of these developers. The range of financial products on offer is as dazzlingly varied as the developments themselves, and can range from small loans in the tens of thousands to multi-million pound comprehensive construction packages. As with any financial product a misused loan can become a financial burden, so it’s vital that property developers seek the guidance of a qualified financial advisor before committing to a property development finance solution.

Why do property developers need specialist finance?

The operation of a property development project may at first glance seem straightforward; a developer buys a plot of land and builds something on it, which they then sell for a profit. Nice and simple, in theory, but the demands of this industry make it easier said than done to take a project from groundbreaking to completion in a timely (and most importantly profitable) way.

Property development finance is the cornerstone of any successful development project because it enables developers to operate free from the burden of capital. Many aspects of property development require “cash on the table”; for instance, buying a plot of land cannot be achieved with a mortgage, because banks refuse to lend on undeveloped land. Similarly, it’s impossible to acquire funding from a bank quickly enough to meet the highly pressured timescales of many property development deals, where agreements need to be cemented in place in just a few days. Property development lenders are specially equipped to meet the demands of this fast-paced business model, and can empower developers to act decisively instead of hamstringing them.

How does property development finance work?

There are various different types of property development finance that cater to different types of development project including property refinance, property purchase and pure property finance. However, these all have some basic DNA in common, and a basic grip of the underpinning characteristics of all property development finance is vital for anyone seeking a loan of this type.

Property development finance has a lot in common with bridging finance, which is another common type of finance used within the property development industry. They’re both types of secured lending, which means the borrower must provide an asset to guarantee the loan; in most cases, this consists of the property that’s being renovated or constructed, but it can be necessary to provide secondary security in the form of other property. Because they’re backed by assets, development loans have no theoretical limit - as long as the asset they’re secured against is worth enough to secure the loan, most development lenders can provide any amount of money. This enables borrowers to fully fund large-scale projects with ease, and it’s even possible to borrow 100% of the construction costs for a building if sufficient secondary security is provided.

In addition to creating a large source of finance, development finance lenders understand the need to work to a tight deadline. Few developers have the luxury of being able to wait while a lender makes a decision, so development financiers have become amongst the fastest lenders in the world; these lenders can turnaround a major development loan faster than some banks approve an unsecured personal loan. While most lenders will be able to operate quickly, they can also kick things into high gear when necessary, so if your project needs to get funding in just a few days it’s usually possible to find a lender that can meet your needs.

This flexibility is another of the key attributes that makes development finance such a specialised industry, and one so well-suited to the needs of its customers. Development finance lenders don’t just work quickly, they’re also able to adapt their loan packages to the needs of each individual client. If a developer needs a longer-than-usual loan term, for instance, in order to finance a lengthy project, a lender can accommodate these requirements. Similarly, if they need to keep operating costs down from month to month, it’s usually possible to roll up the entire cost of a loan until the very end of the term, minimising the burden that this places on the borrower’s bottom line.

Types of property development finance

Property development is a wide-ranging field with many different sub-sectors. Different finance can be used for different areas, and a few of the most common uses are highlighted below:

Property Refinance

It can be necessary to find a new lender while a property is under development. This can be due to the original lender failing to meet requirements, a change in the market or a need for different terms, and with the flexibility of development lenders it’s straightforward to arrange a property refinance package.

Property Purchase

The upfront costs of kick-starting a project are high, and a development is at its most vulnerable in the opening stages. Specialist property purchase lenders are able to ensure that a project gets off on the right foot with a stable, secure lending package that covers all the bases.

Property Finance

An all-round funding package, property finance enables developers to cover all the costs involved in development. With options to extend and adapt lending conditions to their specific needs, property developers can use property finance to drive their projects along quickly and confidently.

Property development finance is an essential ingredient in a successful development project, and it’s important for property developers to keep in mind how this specialised sector caters to their financial needs.

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