Finance a property development project
Successful property development is based on three core principles:
1. Calculate the costs involved in both buying the plot and build stage,
2. Calculate the end value
3. Source the finance for the whole project.
Calculate the costs
It is very important that these costs are calculated accurately. If it is a large commercial project it is important to take professional advice from the architect and surveyor/agent.
Plot acquisition price
How much you have paid for the land/buildings
Build costs
Cost of materials, labor etc. There are now many contractors that will provide a fixed or capped quotation
Stamp duty
Up to £120K 0%
From £120,001 - £250K 1%
From £250,001 - £500K 3%
From £500,001 and above 4%
Professional fees
These include surveyors, architects, agents and finance brokers.
Finance costing
Arrangement fee, Valuation fee and broker fee
Contingency cost
Contingencies estimates can vary between 5 and 25% of total project cost depending on the degree of complexity and risk involved with your project.
End value Profit
A developer can assess the end value of the development by:
Estate Agents
Useful in making quick assessments of the potential of a site.
Your own comparables and market research
Professional valuations
These are reports compiled by a professional surveyor who will also determine the GDV of the project.
Finance options – The majority of high street banks work on a 70/70 split whereby they will finance 70% of the plot acquisition cost and provide 70% build costs. For large scale projects where developers can show previous experience and high profit margin of the project, 100% development finance is available where the lender will fund 70% of the plot acquisition costs and 100% of the development costs. If you can provide additional security then 100% acquisition and 100% development costs could be feasible.
Residential Mortgages
If you are building an extension to your house or residential development project, sometimes the easiest way is to get a traditional residential remortgage. If the property requires major refurbishment, then you can get a bridging loan.
Mezzanine/Equity finance
Mezzanine and Equity finance is only available for large scale and experienced developers. These facilities involve using other investor’s money where the developer has no deposit. The investor will want a large return. At Mayfair Consulting we may be able to source Mezzanine finance for small developers too if the project would yield a very high profit margin.
Think carefully before securing other debts against your home.
Your home may be repossessed if you do not keep up repayments on your mortgage.
The overall cost for comparison is 7.1% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There may be a fee for the mortgage advice. The precise amount will depend on your circumstances, but we estimate it will be 1.5% of the loan amount with a minimum fee of £500 added on to the loan.
Mayfair Consulting Limited is an Appointed Representative of The Mortgage Times Group Limited, 279 Tottenham Court Road, London , W1T 7RJ , which is authorised and regulated by the Financial Services Authority no. 303007.
