First time property development finance

As a new developer with a first time project, the information you will need to provide will be looked at in detail by the bridging and development lenders.

Before going to your lenders with an application you should have the following:

Purchase price: experienced developers will tell you a project can succeed or fail depending on how much you pay for a site or property, long before any work is done. 

Paying too much for a site won’t sit well with a lender who will have an independent valuer give their value of opinion.

If the valuer doesn’t agree with your purchase price, the lender will side with the valuer and offer you property development finance based on the value they give it.

Build costs: To assess whether a project looks viable, the build cost is a huge factor. If the cost of work is too high it will take away too much profit from a project and make it not worthwhile. 

For an initial enquiry I can discuss just the costs without detail but to get a meaningful decision from a lender will require some detail.

At all times I would recommend providing costings as detailed as you can. As a first time property developer looking for finance, having detailed costings will give a lender some confidence you’ve properly assessed the project. 

They can also take you more seriously than if you just give a basic number without the workings out to show how you got to the final figure.

I work with clients who have used software to get their build costs to those who have had a builder put figures together for them. 

Lenders will have expectations of the total cost based on the cost per square foot, being too low will have them questioning your project.

End values: the Gross Development Value (GDV) of the project is, quite obviously, the most important figure you and lenders will look at. 

I do occasionally have conversations with clients who don’t know what their GDV is likely to be, which immediately puts them on the  back foot. 

Without knowing the end value, there is no point in discussing a project as that final figure will make or break an application.

As with the purchase price, the development lender will have the GDV verified and commented on by an independent RICS valuer.  So, exaggerating the end value will not help you, no matter how tempting it might be.

Development CV: even when applying for first time development finance as a first time developer a lender will ask for your CV or background in development.

Having carried out a similar project for a client or an employer will give some lenders enough faith in you to back your project with you in control. 

If you have no experience at all you can compensate for this by employing either a main contractor or project manager.

There is no point exaggerating your experience as you will be found out during the process and it will hurt your credibility. 

Your capital: as a first time property developer you will need to have capital to put into a project. 

The lenders who provide joint venture funding will not be willing to fund a developer without experience, so capital will be needed.

The more you can put in the more keen a lender will be to back your project. They all have their own criteria on maximums but bringing down the loan to value will be attractive to development finance lenders.

To give lenders confidence in your application it is important, I think, that you know how much capital you have available to put into a project. 

As with all the figures above the level of capital can make or break the development project. 

Lenders will not put time to an application without knowing how much you are going to need to borrow.