Development Finance Calculator

Unlike regular home or business mortgages, development loans are paid out
in stages from an agreed loan pool. Lenders will typically limit the funds they
are willing to provide to no more than 65% of land purchase costs, and up to
100% of the construction costs.

Here’s an example of new-build development finance:
A plot of land has been sourced that has planning permission to build ten,
three bedroom detached houses. The land can be purchased for £600,000 and
the cost to build all ten houses will be £2,000,000. Total deal costs are
£2,600,000, excluding fees and interest.

The estimated value of each house after construction (including their
freehold), is £350,000 meaning a Gross Development Value (GDV) of (10 x
£350,000) £3,500,000.

Development finance can be used to raise up to 65% of the land cost =
£390,000 and 100% of the build cost = £2,000,000. This is also subject to the
total borrowing requirement not exceeding 70% of the Gross Development
Value (LTGDV), which in this scenario is 68% (£2,390,000 vs £3,500,000).
A loan facility is set up for £2,390,000. (The pool).

Funds are released in
stages, with an initial release of £390,000 to help buy the land. The developer
will provide cash in the sum of £180,000 to complete the land purchase.
The remaining £2,000,000 will be released in stages as the new-build
progresses. The borrower will use their cash first, with the lender then
following with further drawdowns.

The borrowed sum of £2,390,000 plus interest is repaid when the houses are
sold on completion. As this deal is not a joint venture, the developer retains all
the profits.

With most development loans, interest is only charged on funds that have
been drawn from the loan pool.

The interest rate charged on development loans is directly linked to the
lender's perceived risk of the deal. Therefore, the more you borrow against the
total project cost, the higher the interest rate is likely to be. Therefore, any
developer needs to trade off the cash they have available to contribute
towards the scheme vs the interest rate they are willing to pay to borrow the
funds.

Use our development finance calculator today to see a rough indication on
possible solutions, you can then send us a FREE enquiry to be matched to a
panel of lenders specialising in this field.

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