A Property Development Loan is a specialist short term secured loan, often provided on a stage payment basis. In a market of falling or static property prices, making a profit out of developing property is much more risky.

Lenders today will only make loans if:

• you are a developer with an excellent track record.
• you have an agreed buyer for a development, who has bought off-plan,
• speculative building is contemplated where there is a strong rental market for the completed development, ( anticipated rental income must service the debt the developer is carrying).
• you already own the land with planning permission or have substantial collateral

If a loan is approved, the lender will appoint a professional, either an architect or a surveyor as the job requires to sign off the work done at each stage, prior to drawing against the loan. Lenders usually like to maintain a situation where they have advanced no more than 60-70% of the value of the project at any time as value is added. Once a development is completed the Property Development Loan will either be extinguished by the funds from the sale of the development or by a term mortgage based on the final valuation of the property.

The fees charged for Property Development loans are higher than would be charged for a mortgage, because there is ongoing management time required on the lenders part to monitor the status of the development. High Street banks have generally withdrawn from the development market leaving only short term bridging type lenders active, who have a similar charging structure to bridging finance.

For larger developments, typically over £2 million, we can obtain mezzanine finance and private equity finance, where lenders will take a profit share in the development. This is usually used for a top-up where a high street bank is providing the senior debt.