FAQ: Property Development Finance in Scotland Frequently Asked Questions
How does Property Development Finance in Scotland Work?
Borrowing for a development project is based on a percentage of the property or land purchase price, or if a planning gain has increased the value the borrowing can be based on the value. Thereafter, refurbishment costs or ground up build costs are funded in arrears with monthly drawdowns based on a Quantity Surveyor's report.
What is the Minimum Loan Amount?
The minimum loan amount for property development funding in Scotland is £750,000. However, bridging finance from £50,000 can be used for smaller developments.
How are Property Developments in Scotland Financed?
Property development finance is designed to help with the purchase costs and build costs associated with a residential or commercial property development project and is normally for a short term period of between 6-30 months with the loan repayment coming from the sale proceeds or re-financing to a term loan.
Can I get 100% Property Development Funding?
It's certainly not easy, however In certain circumstances it is possible.
Some of the main circumstances could be;
1. When the property or land you are buying has increased in value due to planning permission being granted resulting in your purchase price being below market value.
2. When you have negotiated a below market value purchase price.
3. When you joint venture with a property or landowner, the unencumbered property or land can be used to secure the borrowing.
4. When you offer an additional property as security in order to borrow up to 100% of the purchase price.
How do I Apply for Property Development Finance in Scotland?
Most Property Development lenders generally require applicants to submit their applications through an experienced broker who can help guide them through the process.
ABOUT PROPERTY DEVELOPMENT FINANCE
It’s fair to say that property development is not for the faint-hearted. There are many moving parts that can make or break your development project.
However, mitigate these moving parts and property development can prove to be a very profitable and satisfying business.
It’s also fair to say there are two main hurdles that have to be overcome by every property developer before a brick is laid or a wall is demolished.
1. Sourcing the Development Project, finding good development projects are not as easy to find as some people might think and a good potential pipeline of projects is what every property developer strives for.
2. When considering to source Property Development Finance in Scotland it's crucial to get in touch with a resourceful and experienced development finance broker who can minimise your development equity contribution and offer innovative funding solutions whilst providing the service you need when you need it and always acting in your best interest.
Knowing that a project can be funded on time for the purchase of your site and that build cost drawdowns land in your bank account within 72 hours is imperative to the success of your project. The old saying “Time is Money” is never truer when it comes to property development.
FUNDING A PROPERTY DEVELOPMENT PROJECT
Bridging finance is commonly used for property development projects with a borrowing requirement from £50,000 to around £2,000,000 and property development finance can be used for a borrowing requirement of £750,000 to £50,000,000.
Dependant on the size of the project, the short term loan can typically be for a period between 6 and 30 months.
Both bridging lenders and development lenders will assess the borrowing capacity for a development project based on the GDV (Gross Development Value) of a project and apply the LTGDV (Loan to Gross Development Value) calculation to establish the maximum loan amount.
Both types of lenders will advance a percentage of the land or property purchase price or value on Day 1 then provide a drawdown facility that can be drawn on a monthly basis for the build costs or refurbishment costs.
WHAT IF THIS IS MY FIRST PROPERTY DEVELOPMENT PROJECT?
Dependant on the size of the project, not having previous first-hand experience of borrowing development finance should not prove to be an obstacle.
However, if this is your first property development project it will be vitally important that you surround yourself with an experienced professional team, ie. Architect, Structural Engineer, Quantity Surveyor and lawyer that have demonstratable experience in the type of project you are proposing and ideally you will have some background experience in the form of project managing a development of a similar size.
Another comfort provider for development lenders is the quality and experience of the building contractor that you would be proposing to use, again, they should have demonstratable experience in the type and size of the project you are proposing along with the type of building contract that you would have in place, this should be a fixed price building contract.
HOW IS A DEVELOPMENT LOAN REPAID?
There are generally two ways development funding can be repaid, from the outest it is imperaive that a pre-defined exit strategy is established, it can be from the sale proceeds of the completed development or if your intention is to retain the project and rent it to a third party the development funding can be repaid by refinancing the project to a longer term commercial mortgage.
Alternatively, development exit finance can be utilised to allow you to repay your loan and take your profit out of the project for re-investment in your next project.
WANT TO GET THINGS MOVING?
Get in touch with us for a no obligation discussion about your project and if possible provide a property development appraisal detailing:
• The land or property purchase price / valuation.
• Estimated Build costs.
• Estimated Professional fees.
• Estimated Legal Fees.
• Projected Sale Prices or Valuation.
IN CONCLUSION
As noted above, getting a development finance approval has a lot of moving parts, as an experienced finance brokerage with over 30 years experience and solely focused on property finance for property developers and investors we would be happy to guide you through the process and if required put you in touch with an experienced professional team that can help you leverage their experience.
