About Property Development Financing
Property development finance is a type of loan which is secured against land or property similar to the traditional mortgage. The difference from mortgages is that Property Development Financing are short-term and generally used only to fund the build, or property or conversion. After the build is finished, or term of the loan, the properties are usually either sold, refinanced to a cheaper development exit product or longer-term loan. Most development finance lenders will fund a percentage of the site purchase as long as the relevant planning is in place. If not, there are pre-planning products available that allow you to purchase and gain planning.
The risk posed to the lender is significant during the development phase and the security more tough to sell in the event of default. As a result, the interest rates charged are usually far higher than mortgages, meaning they aren’t a viable option long-term.
From owners prospective, Property can be viewed from different point of angles such as; It can be a useful asset for the owner to provide the space to a business to generate an efficient working environment with economic overhead.
A place that can be temporarily rented which can be also an investment vehicle.
A corporate asset that can be used as collateral to obtain money.
A development opportunity where a profit can be realized by means of added value.
The main burdened of any party granting funds for their property development is the ability of the borrower to pay back the loan under agreed terms and conditions. Therefore, the first requirement of a developer seeking finance is to deliver a funding prospectus setting out the project’s financial requirements and persuading potential lenders that the proposed project is viable.
The lender will be concerned with what will happen in the case of default; whether the property is to be owner occupied, sold on, or retained as an investment. Its value at all stages of development is critically important since it becomes the security of the loan and may be repossessed by the lender in the event of default by the borrower. This should be set out in a lending agreement.
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