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Mairead Tudor Lodge

development-finance-information

What information do I need to provide for development finance?

By | Development Finance

If you are looking to apply for development finance in order to be able to fund a building project, then it is important that you prepare as much as possible before making your application.

There are a variety of things that you should be taking into consideration, so that you can carefully plan the application that you make, and in order to ensure that getting a development finance loan is the right option for you. We take you through the information that you will need to provide, as well as overall lending criteria for development finance.

 

Lending criteria for development finance

It is important to keep in mind that development finance lenders will usually consider application on a case-by-case basis. However, it is still important to keep the following points in mind too:

  • Term of loan: this will usually be between 2 and 24 months in total. Some lenders may be more flexible with the terms of a development finance loan, but you will usually find it is a period of 12 to 24 months without any penalties for paying the loan earlier than anticipated.
  • Loan to value maximum: this will usually be in the region of a maximum of 60% of GDV.  The lender will consider how much you are wanting to borrow as a percentage of the gross development value of the completed project. The maximum loan value that you can receive based on GDV is usually 70% but it can be higher.
  • Experience: the level of experience of the property developer will also be important.
  • Security offered: the building or site offered as security must be suitable
  • Location of the development: the location of the site or building will also be taken into consideration.
  • Feasibility of the project: the lender must believe that the project you intend to carry out is feasible. If they have too many concerns, your application could be rejected outright.

What information is needed for a development loan application?

In terms of the information that you will need to provide to a lender when applying for a development finance loan, you will find that you will require these details:

  • Details of the site or building: this includes the value, location and the price of the site or property
  • Development costs
  • Development appraisal
  • Planning permission details: what you are intending to build and what permission you have already for the site
  • Gross Development Value details: this includes providing evidence of the expected end value to the lender.
  • The details of all applicants involved. If you are a limited company then the directors details will all be required too. This includes the history of previous developments carried out, how successful they were, their CVs, and project profits from previous developments.
  • Who the main contractor will be
  • Who will be the project manager for the development finance project
  • Company structure
  • Asset and liability statement for the company directors or applicants involved

 

What paperwork will I need to provide?

Other important items you will need to provide include:

  • A detailed breakdown of all project costs
  • All designs and drawings of the project
  • Planning permission details and applications
  • A complete schedule of works for the project
  • Details of professionals involved in the project
  • Details of your previous development experience
  • A completed Asset, Liability, Income and Expenditure Summary (ALIE)
  • A planned exit strategy for the project being carried out
funds-development-finance

How funds are transferred in development finance

By | Development Finance

Development finance loans can make a fundamental difference to the process of renovating for property developers, helping to provide cash flow so that the work can be completed in the most efficient way possible, without having to worry about how the project will be financed, also helping to reduce potential stress.

However, if it is the very first time that you have applied for development finance, you may well be wondering as to how the funds are transferred, and how the overall process works.

In this guide, we will explain in detail exactly how the funds are transferred in different stages over the course of a building project.

 

Why is development finance given in stages?

It is important to remember that development finance loans are always released in stages through a number of payments. This is because development finance lenders want to ensure that the loan given is proportionate to the value of the work being carried out.

It is also to make sure that the loan is being used under the conditions initially agreed on by the two parties concerned.

 

Securing the purchase

The first stage of development finance funding will typically involve securing the site. The lender will usually provide an agreed set amount upfront, so that you the buyer are able to complete the purchase of a property.

Whilst the exact amount that is provided upfront will often be dependent on the development finance company that you choose, you can usually expect this to be somewhere in the region of 65% to 70% of the current valuation of the site.

From this aforementioned figure, charges and interest will be deducted, which will then leave you with the net development finance loan.

 

Payments in stages

Throughout the course of the build, payments will be released in stages by the lender. This is to help you to continue working on the building project. Payments are released once the current work has been signed off by a monitoring surveyor.

The surveyor in question is instructed by the development finance lender to manage the site and work, in order to ensure that everything is on track with the project.

Typically, the monitoring surveyor will carry out checks to ensure payments are released.These include checking that the work has been completed and meeting the terms and conditions of the loan itself.

This includes abiding by the agreed upon build schedule, as well as cost management and ensuring that the quality of the work carried out is to a high standard.

If the monitoring surveyor finds any discrepancies during the building project, compared to the agreed upon plan, then it is possible that the stage payments for development finance could be delayed.

 

Cash flow management

One of the great things about development finance is that it enables you to keep the cash flowing throughout a building project. Make sure that you follow the work schedule, as well as keeping a cash flow forecast to ensure the project runs smoothly.

 

Accuracy of building schedule

When it comes to development finance and cash flow, it is extremely important that your costings and build schedule is accurate in order to keep everything on track.

This is important, as whilst lenders will usually be happy to release equal amounts each month, you could find some months more expensive than others.

 

planning-permission

What building work requires planning permission?

By | Development Finance

If you are looking to apply for funding through a development finance broker, it is highly likely that you will be using this loan in order to finance renovation or construction costs for a building you have purchased. However, the last thing you want to do when carrying out construction work is to poorly plan it, and potentially end up not getting the planning permission you required and having to knock the building down, or pay a fine. But which types of buildings need planning permission, or what kind of projects do? We decided to point out the key facts so that you are fully aware of when planning permission is needed.

Extensions

If you are intending to add an extension to your property (providing it is not a flat or maisonette) it will usually fall under the category of permitted development, therefore meaning that you will not need to get planning permission. This is as long as it falls into one of the following categories:

  • The planned extension will not be higher than the highest part of the roof
  • It is not going to e more than have the area of land around the original house. This means as it was seen in 1948, after this it is considered as newly built.
  • The planned extension is not forward of the principal elevation or is it a side elevation that goes onto a highway.
  • If it is a two-storey extension it is no closer than approximately seven metres to the rear boundary.
  • The extension does not include raised platforms, verandas or balconies
  • If it is a rear extension, the maximum height of your (single-storey) extension is no more than four metres high
  • If there are any upper-floor, side facing windows, these have been obscure-glazed.

Sheds, garages and greenhouses

If you are deciding to create an outbuilding like a shed, garage or greenhouse, these will also fall into the permitted development category. It is possible for you to build a garage or an outbuilding on your property without getting permission providing that it is considered to be of reasonable size.

planning-permission-fees

Have you checked carefully to see if you are liable to get planning permission for your renovation?

That is, it should be no higher than 4 metres. Of course, there can be exceptions where planning permission may be required if it is not a typical outbuilding. In this scenario, contact your Local Planning Authority or your Planning Portal in order to obtain more details of potential planning exemptions for outbuildings.

Indoor renovations

If you are looking to carry out internal works to a building that you have bought, such as a garage conversion, adding a new kitchen or bathroom, creating a loft conversion or rewiring, you will also not usually need to get planning permission.

However, if you live within a Conservation Area, or if you are looking to make renovations within a Listed Property, then you are advised to check with your local planning authority (LPA) first.

Changing the use of a building

If you are looking to undertake a project that means you are hoping to completely alter the building from its original use, then it is probably the case that you will need to apply for planning permission.

New building

Looking to create a new building entirely? You will also most likely need to get planning permission for it before going ahead and start construction works. Deciding to go ahead without getting this permission is risky, and financially so too. You could receive an enforcement notice from your local council, and ignoring could entail a number of legal and financial consequences for you.

How much does a planning application cost?

If you need to get planning permission for the work that you intend to carry out, then there will be fees you will need to pay. If you are making a full application for a new single dwelling in England, then the cost will be £462, whilst different fees apply in Scotland, Wales and Northern Ireland. Meanwhile, if you require planning permission for certain types of home improvements you are carrying out, this will cost you around £206 in England.

How do I apply?

Luckily, to simplify the procedure, all local planning departments use the exact same application form for planning permission, known as 1APP. This form can be found in your local area and the application can be done online via a Planning Portal.

development-finance-fees

What are the extra costs involved in development finance

By | Development Finance

If you are considering applying for development finance through a broker, like ours at Magnet Capital, then it is important beforehand to take into account that there are other fees that you will need to take into consideration when you make an application. After all, the last thing you want when applying for funding is to suddenly find out unexpected costs after you have already made an agreement.

Unsure as to what sort of fees you should expect if you are applying for development finance? No problem at all. In this guide, we take you through everything you need to know about the other potential costs you could incur so that you can make an informed decision.

Broker fees

One of the main fees you will usually be expected to pay when getting development finance are broker fees. The exact amount that you will pay will typically depend on the broker, as well as the lender that you decide to choose. In terms of the average broker fee, it is in most cases approximately 1% or 2% of the total loan value taken out.

Let’s put that into an example. Say you decide to take out a development finance loan for £500,000, this will mean that you will pay a broker fee of somewhere between £5,000 and £10,000 in total. Whilst you might think this is simply an additional perhaps unnecessary cost of having to pay for a broker, think more carefully about it. This is because you may in fact actually be able to benefit from a better chance of approval earlier on as well as a lower interest rate, by deciding to go with a broker in the first place. As a result, you may end up saving more money overall by using a broker.

Arrangement fees

When getting a development finance loan, it is usually the case that the chosen lender will charge you the customer an arrangement fee. This refers to organising the loan itself and covers the cost of the work done by solicitors as well as their administration. Again, like broker fees, the exact cost of this will vary, but it is usually around 1% to 2% overall of the total loan value. Furthermore, depending on the lender in question, it could even be a requirement prior to the loan being funded, or alternatively, it is rolled up as a payment onto the full loan amount.

Surveyor costs

You will also need to take into consideration the cost of valuation fees when taking out this kind of loan. A surveyor you use, (or otherwise allocated to you by the lender or broker) will cost you anywhere from £300 up to approximately £1,200 in total for carrying out a survey of your property.

Remember all the costs that will need to be factored in when getting this kind of loan.

It is possible for you to choose your own surveyor if you so wish, but you will have to make sure that they are RICS qualified.

Stamp duty

Another fee you will need to remember to think about is stamp duty. Stamp Duty Land Tax is a lump-sum tax that is charged on all property and land that is bought across the UK. The exact amount you will pay for this will depend on certain variables, such as the purchase price of the building, and whether it will be used for residential or non-residential use.

Construction costs

Of course, when taking out a property development finance loan, you also need to factor in the costs of construction costs for carrying out your project to completion. Always make sure you have made a plan before carrying out constructing work and make a budget that you are comfortable that you will be able to stick to.