What’s the best way to fund property development?
Trends in property finance for 2022
For anyone starting out as a property developer, one of the key areas to get right is finance as this will be pivotal to being able to secure properties or sites, progress development or refurbishment, and remain agile as new opportunities arise. Good cashflow and flexibility enable any business to thrive, but never more so than in the property sector where unexpected opportunities and challenges are likely to arise.
In recent years, bridging loans have been a popular way for developers to facilitate the purchase and development of property or land ahead of resale, but development finance is now said to be ‘hotter’ than bridging as a source of funding, according to a recent survey of brokers.
Property development in the UK is booming with a record number of planning applications approved in 2021, and more entrants are expected to enter the sector with many profitable opportunities to convert commercial buildings for residential use and adapt buildings as HMOs to meet the nation’s housing need.
Understanding and knowing the best type of finance to use for each project is key to maximising the profit of a development, and this, along with a well-developed plan and close management, are key to success. Working with a whole of market broker ensures that you receive expert, professional advice on choosing the right product for each project’s timeline, and to avoid unexpected costs which can easily eat into the bottom line. If you are a first-time developer or have found it difficult to arrange finance in the past, working with a broker may help you to identify the best type of funding from a specialist lender which is willing to work with you and get your property development business off the ground.
When should I use development finance?
Development finance offers fast, short- to medium-term access to capital for the construction, conversion and refurbishment of property projects. With a growing number of specialist development finance lenders in the market, this type of funding is available to experienced builders and developers to cover the cost of materials and labour and is based on the projected future value of the completed property.
With funds available in as little as 48 hours, development finance can enable a developer to respond to a market opportunity promptly. An application for development finance will require a breakdown of all project costs, designs and drawing for the development, planning permission details and applications, a complete schedule of works and information about companies you may sub-contract, plus information about previously completed projects which demonstrate experience and financial responsibility.
When should I use a bridging loan for property development?
Once considered a niche product, bridging finance has evolved hugely as a mainstream, flexible type of lending and can be a highly effective finance tool for a developer to secure a property or land, particularly if an opportunity arises while they are mid-project and have a shortage of available working capital. Used for a fixed timeline and where there is a clear exit strategy, bridging finance can provide an effective short-term funding solution.
One of the biggest myths surrounding bridging finance is that it is expensive and while a bridging loan may attract a higher rate of interest it affords flexibility and convenience, which is often a huge advantage in property development. As with any type of borrowing, it is important to be mindful of the market you are operating in and that rising costs could impact the profitability of a project and the ability to repay a bridging loan in full.
How can I build my knowledge of property development?
Complete Commercial Finance sponsors The Developers Network Cambridge, East Anglia’s only dedicated networking group for property professionals. Meeting monthly in Cambridge, the group attracts a wide range of developers, investors and trades and has a monthly speaker to build connections and your knowledge of the sector. Book a ticket and join the group and meet Complete Commercial Finance’s expert team to explore funding for your next project or to refinance your property portfolio.
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