If you are looking to complete a property development or you require funding for expansion, you are likely considering some of the ways that you can fund these projects. Because development projects tend to require a large cash injection, it is more likely than not that you will require a loan.
At Bridging Finance Solutions, we have worked with countless developers, and we are familiar with the challenges they face when financing a new or ongoing project.
Standard bank loans are a common option, but can often take months to be accepted, which can prove problematic when working within specific time restrictions. For this reason, residential development finance is becoming an increasingly popular solution.
If you’re unfamiliar with this funding style, here is everything you need to know about residential development finance.
What is Residential Development Finance?
Residential development finance is a type of funding intended to support property developers in the construction, conversion or refurbishment of residential properties.
Residential development finance can be used for various projects, such as single-family homes, multi-unit complexes, and large-scale residential sites.
Unlike standard mortgages, these loans are intended to meet short-term cash flow needs and provide developers with the necessary flexibility to efficiently complete their planned projects.
At Bridging Finance Solutions, we are all too familiar with how necessary a quick cash injection can be for completing development projects. That is why we aim to provide our loans as quickly as possible.
Who Can Apply For Residential Development Finance?
One of the more popular residential development finance frequently asked questions concerns who can apply for finance.
There is a broad range of applicants that can apply for residential development finance; these include:
- Partnerships specialising in residential projects.
- First-time developers.
- Experienced property developers looking to expand their current portfolios.
We typically perform a credit check and due diligence on development finance applications before we commit to lending finance to developers. We also consider the project’s viability and the lendee’s track record.
What Types of Projects are Covered?
Residential development finance can cover a range of property-related projects. These may include, but are not limited to:
New Build Developments
We can provide financial support for constructing single-family homes, apartment buildings, and large residential developments. This financial assistance frequently covers the substantial costs associated with both land acquisition and construction.
Conversions
At Bridging Finance Solutions, we can provide funding for developers to complete conversions on various projects. Be that for transforming non-residential properties into residential units or partial conversions, such as turning part of a commercial building into living spaces.
Major Renovations and Refurbishments
Residential development finance is commonly used for major renovation projects, such as updating and repairing existing residential properties or revitalising older buildings.
When completing renovations, including structural changes and interior redesigns, you are expected to cover many costs, which may require financial support.
Mixed-Used Developments
Residential development finance is often essential for developing combined residential units and commercial spaces, such as an apartment over a shop. These developments are growing in popularity with the expansion of urban areas.
How is Funding Structured?
When receiving funding, you can expect it to be provided in stages. These stages are known as drawdowns, and the funds will be released in increments. This usually occurs as key phases of the project are completed.
Loan to Value Ratios
In projects utilising funding for the acquisition of land, the Loan-to-Value (LTV) ratio may be determined as a percentage of the appraised value of the land.
It is not uncommon for lenders, such as ourselves, to assess the LTV against the project’s gross development value (GDV), which can impact the loan amount the borrower is entitled to.
In some cases, a lender is expected to offer a percentage of the total project cost. For example, if construction costs are expected to be around £600,000, a lender may fund up to a maximum 100% of this cost.
At Bridging Finance Solutions, we provide competitive loan-to-value (LTV) ratios customised to your project’s specific requirements. Whether your needs pertain to land acquisition, construction, or phased development, our team of experts will assist you throughout the process. We are committed to ensuring that you achieve an appropriate balance between funding and equity.
What Are The Typical Interest Rates and Fees?
Some factors can impact the rates and fees for residential development finance. Some factors that may impact interest rates and fees include;
- Market conditions
- The borrower’s financial situation and past experience.
- The risk.
Due to the nature of the funding, residential development loans tend to have higher interest rates than standard mortgages. Because the loans are often much shorter, there is almost more risk in terms of repayment that needs to be accounted for.
At Bridging Finance Solutions, we always provide clear guidance to all of our clients and offer competitive rates.
How Long Does the Application Process Take?
At Bridging Finance Solutions, we pride ourselves on providing quick funding.
We understand the importance of quickly sourcing the necessary finances for your development project, so we will try to assess your application as quickly as possible. If you wish to take out a development loan with us, it is recommended that you have all the necessary documentation prepared to ensure the process is as smooth as possible.
What Documentation is Required?
If you have never completed the process of applying for a residential development bridging loan, you may not have been aware of the documentation you must provide. Before contacting our team to apply for a loan, ideally, the following information will be required. If this documentation is available, this speeds up the application process:
- A detailed business plan outlining the project
- Financial projections and cash flow analyses.
- Personal and business financial statements.
- Planning permission and approval documents.
How is Risk Assessment Handled?
The risk assessment is an essential part of the application process and can determine whether or not you receive the funding you requested.
At Bridging Finance Solutions, we will evaluate the following factors:
- Market demand in the target area.
- Feasibility and potential profitability.
- The developer’s track record and financial position.
For every case, we will use experienced assessors who will ensure that there is a fair evaluation of the application.
Why Choose Bridging Finance Solutions?
If you have determined that you require residential development finance after reading this article, your next question may be, ‘Why should I choose Bridging Finance Solutions? ‘ Well, our case studies speak for themselves. We are at the forefront of tailored funding solutions, and our fast and flexible approach has been proven to help developers achieve their goals.
We are more than just a lander; we are partners in your development journey.
If you would like residential development finance, fill out our application form today or give us a call and make it happen with BFS.