Why use development finance?

  • The amount you can borrow is dependent on the value of the security and gross development value of the completed site. As construction starts and progresses, funds are released in staged payments and in line with the build schedule, costings, and cash flow.
  • Interest can be added to a development loan and does not depend on the borrower’s income to demonstrate affordability and servicing of the loan during development.
  • Development finance is short-term finance and can be cheaper than a long-term mortgage as interest is charged on drawn balances. Furthermore, surplus capital can be used to reduce debt without early repayment charges (ERC).
  • Development finance lenders are flexible and pragmatic in their approach to lending. They can tailor facilities to support the complexities and changes during the life cycle of the project, for example, adjusting funding for valuation gains, planning amendments and changes in cash flow.
  • Mezzanine finance (also referred to as subordinated debt) can be a funding option if the developer does not have the required deposit for the property development project. In return for capital and to compensate for their risk, the mezzanine lender will usually take a second charge over the asset ranking behind the senior debt, charge a higher interest rate and/or take a profit share of the development profit or fee net of their investment. Mezzanine financing is restricted to experienced developers with a proven track record of success.

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