Apparent lack of finance frustrates 75% of developers

Apparent lack of finance frustrates 75% of developers

14:09 PM, 1st September 2016, About 7 years ago

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Roll back the clock to pre credit crunch time and developers were generally financed through their banks. Due to a dearth of readily available finance from this traditional source, a number of new lenders entered the market.

With the number and variety of existing and new lenders, development finance has become a far more complex road to navigate.

The different types of lenders have been categorised into 5 classes below. Within these are a number of sub classes, cross overs and some generalised statements to keeps things as simple as possible.

High Street Banks:

These were the traditional lenders. However today, it is difficult to access funds from this source. Often they will only lend to existing customers and have a minimum loan amount of £500,000 plus.

They will typically lend up to 60% of the costs of a development at a rate of 4% over base and are very selective about which projects they will finance and often the decision process can be very time consuming and and up with a decline.

Merchant Banks:

These banks have historically funded developments that don’t meet the criteria of the High Street banks and charged a premium interest for their loans.

They are now financing developments that would have previously been funded by High Street banks and are charging interest rates of 7% and in some cases charging an exit fee of between 1% and 2% of the Gross Development Value (GDV).

They normally have a minimum loan criteria of £500,000 and can be selective on which deals and geographical areas they are willing to lend against with a typical maximum Loan to Value (LTV) of 55% of the GDV.

Specialist Development Lenders:

These lenders will often finance projects that the above two banks will not consider. They are more flexible and less demanding in experience and credit status requirements. Typically they will finance around 75% of all costs and will often allow Mezzanine lenders to top up financing an additional 15% of the costs.

This means that the developer is only required to put in 10% of the costs.

These Specialist lenders will charge interest rates of around 8% pa and will have negotiable exit fees.

The minimum loan amount varies from lender to lender.

Private Companies:

These companies are usually funded by High Net Worth individuals and other institutions. They will typically lend up to 90% of all costs or 70% of the GDV.

Interest rates charges are around 12% pa with a 2% arrangement fee and differing exit fees.

This is very much a growth area due to all time low deposit rates and the need to make capital work.

Private Equity Partners:

This type of investor normally operates through a Joint Venture (JV) arrangement.

They will often lend up to 100% of the costs of the development, but usually require interest on the loan amount and also a good proportion of the profits.

As they are bearing the financial risk they will only get involved with experienced developers on projects that show a good return.


The Development finance market has evolved over the last few years and there are now more combinations of options than ever before. Given the complexity of the funding available, it is wise for developers to seek the advice and guidance of experienced commercial finance brokers who are also members of the National Association of Commercial Finance Brokers (NACFB)

Please CLICK HERE if you require any assistance financing your project and we will be pleased to help.


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