Property development finance options

If you’re new to the world of property development and looking for available finance, you’re probably unaware of the different finance options available. There is a variety of different finance options available to property developers, however, this can be quite a complex arena to navigate.

Some finance options to consider include:

Commercial mortgages available from banks and institutional lenders

Commercial mortgages work in much the same manner as residential mortgages and can be used to fund the purchase of a range of different commercial buildings. Lenders tend to be more positive about funding mortgages for existing businesses, rather than startups, however, if you hunt around you may be able to source deals.

Development finance

Experienced property developers may well be able to access up to 100% of the costs for developing a new property from specialised property development lenders. Costs for the purchase of the land and building could qualify for loans, depending on circumstances. The types of developments qualifying for loans of this nature include:

– development projects
– commercial new builds
– conversion and change of use developments

Mezzanine loans

Mezzanine financing can be accessed by developers looking to reduce the amount of capital they have tied up in a development. This type of finance is a form of second charge loan, and developers with existing loans in place may find it easier to access funding of this nature. It’s generally possible to increase borrowings up to a maximum of 90% of total costs or 70% of GDV with mezzanine loans and they’re usually only available for new build projects and projects entailing redevelopment.

Some potential problems facing developers when attempting to access lending include:

If the property to be developed falls into the category of unmortgageable, which is often the case for refurbs, renovations and conversions. Lenders may also refuse finance if they feel the property is uninhabitable, so if your property does not have a working kitchen or bathroom you may find it difficult to access loans.

Bridging loans can be the solution if this is the case, as these allow developers to fund the renovations needed to make properties mortgageable.

Panoptic can help developers source finance for development purposes.

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