What is Regulated Development Finance?

Development finance can be a tricky concept to get to grips with as a first-time developer. Far from a simple property development loan, development finance is a bespoke, precision-engineered facility for the more ambitious and advanced property development projects.

Throw the idea of regulated (and unregulated) development finance into the mix and the whole thing becomes all the more daunting.

But what exactly is regulated development finance and how does it differ (if at all) from unregulated development finance?

The Basics of Regulated Development Finance

In simple terms, when a broker or lender talks about ‘regulated development finance’, they are referring to a facility that will be used to fund a development project where 40% or more of the property in question (i.e., the planned project) is to be used or has been used, in connection with, the primary dwelling of the borrower.

What this means is that even if the developer intends to sell or let out some of the development upon its completion, they still intend to reside there themselves as an owner occupier.

For example, a developer may purchase a plot of land with the intention to build one or more properties on it. If one of the subsequent dwellings becomes their primary place of residence, the loan issued for the project will be a regulated loan.

Both facilities work in predominantly similar ways, but the terms and conditions attached to a regulated bridging loan will be slightly different to those of an unregulated loan. In addition, it is sometimes (though not always) a little more time-consuming to process and authorize regulated development finance applications.

Why Choose Development Finance?

Development finance is the tool of choice for most experienced developers for the simple reason that it is engineered exactly with property development projects in mind. It is also a highly flexible facility, which can be used for all types of property development and ground-up construction projects.

From light and heavy refurbishments to converting commercial properties for residential use – to building enormous new developments from scratch, a specialist development finance loan can be used for almost any legal purpose.

Typically available exclusively to experienced developers with an established track record, development finance has the potential to be a uniquely cost-effective funding solution. Issued as a short-term loan to cover some (or all) project costs, a development finance loan will usually be repaid within six to 24 months. Interest on a development finance facility can be lower than 0.5% per month, making it hugely affordable when repaid promptly.

Where a strong application is presented complete with all essential evidence and supporting paperwork, development finance can be authorized and issued within a few working days. The funds are then transferred to the recipient in a series of installments, which are tied to the completion of major project phases.

Perhaps most importantly, development finance is one of the few facilities a developer can use to cover up to 100% of all project costs. A development finance loan will be issued with a maximum LTV of 80%, while the remaining 20% can be covered with ‘mezzanine’ finance. Where both products are organized with the same lender, the resulting hybrid finding solution can be exponentially simpler and more affordable than any comparable commercial loan.

Is Development Finance Right for You?

If you would like to learn more about the features and functions of development finance, we would be delighted to provide you with an obligation-free consultation at your convenience.

Call today to learn more or e-mail a member of our team anytime and we will get back to you as promptly as possible.