100% Development Finance

If you’re a property developer looking for finance to cover all your project costs, it’s possible to take out a 100% development finance loan. Finding a lender and getting approved, however, can be difficult unless you know where to look.

In this guide, we’ve put together everything you need to know about these big-ticket loans, including how to improve your chances of getting accepted and how a broker can help you get the best deal.

Read on for more information or jump to the section that’s relevant to you via the links below…

Can you get a 100% development finance loan?

Yes, 100% finance for development projects is possible but only in specific circumstances.

Most lenders will let you borrow 65%-70% of the project’s gross development value (GDV), but there are some who’ll stretch to the full amount.

Lenders who offer 100% finance typically release capital in stages, subject to visits by an appointed surveyor whose job it is to check the works are progressing and specific milestones have been reached.

Due to the complexity involved, a broker who specialises in these types of loan is best placed to recommend a lender to you.

How do you get one of these loans?

There are two main ways to secure 100% development finance. The first is to put up additional security, for example another property you own and have equity in. The second is to enter a joint venture partnership.

What security can you put up?

If you don’t have a substantial deposit, you may be able to use one or several properties, or other valuable assets you own, to secure the loan.

It’s worth remembering that if you use property as security and your exit repayment strategy fails, you could face multiple repossessions.

How does joint venture finance work?

With joint venture finance, you don’t have to put your own money down as a deposit or use assets as security. Instead, the lender lends you the full 100% of the cost in return for a share of the profit at the end, typically 40%-50%.

Lenders tend to charge relatively high interest rates on these loans. Alternatively, they may charge a lower rate or even no interest for a larger cut at the end.

How a broker can help you get approved for 100% development finance

Whatever size loan you need, it’s always worth talking to a whole-of-market broker who can recommend the most appropriate lender and save you the stress and expense of wasted applications. For 100% development finance loans, however, a broker is essential.

That’s because specialist lenders who offer these loans – and who tend to offer the most competitive deals – are not generally accessible to the general public. They typically require a referral from a recognised broker.

However, the value of a broker doesn’t stop there. They can give you tailored advice to make sure this type of loan is right for you and negotiate with providers on your behalf. They’ll also be able to present your case to lenders – including your exit strategy – to boost your chances of being accepted.

We have brokers in our network who specialise in 100% development finance loans. Get in touch and we can arrange for an expert to contact you directly.

Eligibility criteria

Lenders tend to assess applications on a case-by-case basis and each lender will have their own set of criteria. However, there are some general requirements most will expect you to meet…

A sizeable deposit or valuable asset to put up as security

Lenders will consider you a lower risk borrower if you have a large deposit or a high-value, sellable asset to put down as collateral. If they view you as lower risk, you have a better chance of getting your loan approved and you’ll probably be offered more attractive terms.

An appropriate exit strategy

You’ll struggle to get approved if you can’t show the lender that your exit – which will typically be a sale or remortgage – can cover the cost of the loan plus interest. Remember, these loans are offered on a short-term, interest-only basis so you’ll need to repay the full amount borrowed at the end of the term.

Joint venture lenders will typically expect your exit strategy to be a sale and may even require an agreement in principle before giving the financing the go ahead.

Industry experience

Some lenders will consider lending to first-time developers, but they’ll view you as lower risk if you have a proven track record of carrying out development projects in the past. Joint venture lenders typically only offer finance to experienced developers but they may consider a first-time application with a strong business plan.

A clean credit history

Your application won’t be automatically rejected if you have bad marks on your credit history. However, having a good track record of paying back loans will improve your chances of getting your application approved and could open you up to more competitive deals.

Bad credit is usually only a deal-breaker for development finance loans if it puts the exit strategy at risk.

A business plan

This is particularly relevant if you take the joint venture route. Joint venture finance lenders will want to see proof of a solid business plan, including profit forecasts. They usually require a profit margin of at least 25%-30%.

At the end of the day, lenders want to make sure they’ll get their money back so will probably ask you for a business plan before offering you finance.

Planning permission

This is particularly relevant to joint venture finance. Most lenders will require planning permission before agreeing to a deal.

Who offers these loans?

Some mainstream lenders offer development finance loans, including Halifax and HSBC. However, they typically require pretty sizeable deposits of between 20%-40%, if not more.

For 100% loans, you’ll need to use a specialist lender.

The lender who financed the land purchase may try to incentivise you to use them to fund the development project too, but you’re under no obligation.

A broker would be able to help you work out whether it’s cheaper to use one lender for both or two different ones.

Can you get 100% residential development finance?

It’s possible but your choice of lender will be limited. That’s because it’s harder for lenders to get Financial Conduct Authority (FCA) permissions in this space. A few providers do offer these loans but often with strict caveats such as 12 month maximum terms.

If you want a residential development finance loan, you’ll have to go through a specialist lender who’ll either ask you to put down a fairly large deposit or enter a joint venture agreement to reduce the risk.

A specialist broker can advise you on lenders to approach and which to avoid.

Connect with an expert in development finance

100% development finance loans are popular with both novice and veteran developers. Whichever category you fall into, you should always seek advice from an experienced, whole-of-market broker.

They’ll be able to give you customised advice and secure the best deal for your circumstances from the most appropriate lender.

We work with brokers who have a track record of helping borrowers get 100% development finance loans. Give us a call on 0808 189 0463 or make an enquiry and get matched with an expert today for a free initial conversation.

We hand-pick all the advisors in our network and rigorously vet them so you know you’re getting the best possible advice.