Development finance is a specialized type of lending designed to fund the acquisition of a property or land and the construction of new buildings. Wiz Wealth, a finance broker, provides access to these loans, which are distinct from traditional mortgages. Instead of being based on the property’s current value, a development loan is structured around the project’s projected value once completed, known as the Gross Development Value (GDV). This type of finance is short-term and is typically used for a variety of projects, from small-scale residential developments to large commercial buildings.
How Property Development Finance Works
A property development loan is a tailored solution for property developers. The funds are not provided as a lump sum but are instead released in stages, or “tranches,” as the project progresses. This approach is beneficial because you only pay interest on the money that has been drawn down and used, which helps manage cash flow. Wiz Wealth, for example, can connect you with lenders who offer this kind of flexible funding.
Lenders determine the loan amount based on several key factors:
Gross Development Value (GDV): The anticipated market value of the property once all construction is complete.
Total Project Costs: This includes the cost of the land, construction, fees, and interest.
Borrower’s Equity Contribution: The amount of your own capital you're investing in the project.
Lenders will assess the project's feasibility, your experience, and your financial standing to determine the loan terms.
Construction and Housing Development Finance
Construction finance is the portion of a development loan that specifically covers the costs of the build itself. These funds are released at key milestones, such as after the foundation is laid or the roof is installed. A lender's surveyor will inspect the site at each stage to verify progress before releasing the next tranche of money. This systematic approach ensures that the project remains on schedule and on budget.
Housing development finance is a targeted type of funding for residential projects, whether it's building a new house, a block of apartments, or converting a commercial property into residential units. It is essential for managing the costs associated with every step of a residential development.
Finance for Property Development: Key Considerations
When securing finance for property development, you'll need a clear strategy. The loan term is typically short, ranging from 9 to 36 months, designed to cover the build period. Your exit strategy, or how you plan to repay the loan, is a crucial part of the application. This is typically achieved by selling the completed properties or refinancing the debt with a long-term mortgage once the project is finished. Wiz Wealth, as a finance broker, can help you navigate these complexities and find suitable lenders for your project.