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The essentials of property development finance

The essentials of property development finance

Property development finance is an essential tool for developers looking to fund their projects efficiently and effectively. Whether you’re a seasoned professional or just starting out, understanding the fundamentals of development finance can make or break the success of your project.

What is property development finance?

Property development finance is a type of short-term funding designed to cover the costs of construction or redevelopment. Unlike traditional mortgages, this finance is tailored specifically for projects such as:

• Building new homes
• Converting existing properties
• Undertaking large-scale refurbishments

Typically, this type of finance provides funding in stages. Developers draw down funds as the project progresses, with payments often tied to completed milestones, such as site acquisition, groundwork, and structural completion.
Key features of development finance

1. Short-term loan terms: Most development loans run for 12–36 months, depending on the project’s size and scope.
2. Loan-to-cost (LTC) ratios: Development finance often covers up to 90% of project costs, reducing the developer’s upfront capital requirement.
3. Interest rates: Rates for development finance tend to be higher than traditional mortgages, reflecting the specialised nature of the funding and associated risks.
4. Drawdown flexibility: Funds are typically released in stages to match the project’s needs, ensuring developers only borrow what’s required at each stage.

Why use development finance?

Development finance provides a flexible and scalable solution for funding property projects. It allows developers to:
• Maximise capital efficiency by borrowing against the project and allocating funds to other opportunities.
• Manage risks effectively through drawdowns tied to project progress.
• Access larger projects with high LTC ratios that reduce equity requirements.

Who is it for?

Development finance is ideal for experienced property developers with a proven track record, although some lenders may consider newer developers with well-prepared business plans and strong teams in place.
How to choose a lender
When selecting a development finance partner, look for:
• Speed and efficiency: Quick decisions and fast drawdowns can keep your project on track.
• Tailored solutions: Every project is unique, so a flexible lender is essential.
• Experience: A lender with industry expertise can add value beyond financing.

Lenders such as Imperial Blue Finance specialize in providing tailored and flexible development finance solutions, ensuring projects are supported from start to finish.
Final thoughts
Property development finance is a powerful tool that enables developers to bring their visions to life. By understanding the basics and working with the right lender, developers can optimise their resources, minimise risks, and achieve success in the competitive property market.