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Lifetime Mortgages, Contractor Mortgages, Property Development Finance in Kent



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Can I Get 100% Development Finance?

Can I Get 100% Development Finance?

When it comes to property development, finding the necessary funds to bring your projects to life can be a significant challenge. One of those challenges can be having the necessary capital, for example, if you have funds tied up in other projects. Thankfully, there is a financing option known as 100% development finance, also referred to as joint venture (JV) development finance, which offers an intriguing solution.

In this blog post, we will explore what 100% development finance entails, the criteria for joint venture funding, alternative options for financing, and how to optimise your chances of success.


What is 100% Development Finance?

100% development finance, or joint venture development finance, is a method of property development that allows developers to pursue projects, using very little of their own capital. Under this arrangement, a lender provides all the necessary funds to complete the development, while the profits are typically shared upon the sale of the property.


Profit Sharing and Financial Arrangements

In most cases, profits are split on a 50/50 basis. Some lenders may charge interest on the money they lend out and share profits slightly in favour of the developer. Others, however, do not charge interest and maintain a straightforward 50/50 profit-sharing arrangement.

It is worth noting, that when interest is charged on the debt, it is usually allowed to accumulate (rolling the interest) instead of requiring immediate repayment. Joint venture development finance is structured to cover the entire purchase and construction costs of the project, providing full financial support.


Criteria for Joint Venture Funding

To access 100% development finance through a joint venture, several criteria must be met:


  1. Experience: This type of financing is typically available only to experienced property developers, who have successfully completed similar projects in the past.

  2. Planning Permission: Full planning permission for the proposed development is essential for the application to be considered by a joint venture development finance lender. Lenders are averse to taking planning risks, so having all necessary permissions in place is crucial.

  3. Profitability: The lender will assess the profitability of your project. Generally, they prefer larger development opportunities with a good profit margin. Smaller projects may not be considered, even if they are highly lucrative.

  4. Personal Guarantee: Any lender offering 100% development finance requires a personal guarantee (PG) to support the debt. The level of PG accepted varies among lenders.


Understanding the Joint Venture Structure

Joint venture development finance often involves setting up a special purpose vehicle (SPV) to own the property and hold the liability. Typically, the SPV is owned by the lender, providing the developer with a guarantee in their favour. This arrangement enables developers to proceed quickly with their projects, utilising external funds and avoiding the need to tie up their own capital.


Benefits of Joint Venture Development Finance

Working with a joint venture development finance lender offers several advantages. Firstly, it allows for rapid development without depleting your available capital. While profits are shared, this enables developers to take on multiple projects simultaneously, resulting in potential long-term profitability and spreading their risk.


Application Assessment and Success Factors

Joint venture development finance applications undergo rigorous underwriting processes. Lenders assume the financial risk and, therefore, expect a suitable reward. The key factors considered during the assessment include:


  1. Experience: Lenders prioritise developers with a proven track record of successfully delivering similar projects.

  2. Profitability: Lenders assess the expected profit margin, typically seeking a minimum uplift in total costs of 25%. Higher margins make proposals more attractive, particularly for projects with higher Gross Development Values (GDVs).

  3. Exit Strategy: A strong demand for the finished units is integral to securing financing. Your development should demonstrate its marketability and desirability, with the location playing a crucial role.


Information Required for an Application

To evaluate a potential joint venture development finance application, lenders typically require the following information:


  1. A detailed outline of your proposal.

  2. Your development CV, highlighting relevant experience.

  3. A detailed schedule of works.

  4. A comprehensive breakdown of costs.

  5. Full documentation of planning permissions, which will also likely be available on the local councils’ planning portal.

  6. Detailed information concerning the GDV (Gross Development Value) or value of the final project.


Increasing Your Chances of Approval

The key to a successful joint venture development finance application lies in providing detailed and comprehensive information, that addresses potential risks. The following tips can enhance your chances of success:


  1. Attention to Detail: Provide high-quality information that offers comprehensive insights into the construction and sales risks, as well as the profitability of your project.

  2. Presentation: Ensure that your documents are well-organised and professionally presented. Clear and compelling data will make a strong impression on potential funders.


Profit-Sharing Expectations

Please note that 100% development finance is typically offered on a profit-sharing basis, with a pre-determined split upon completion. Traditionally, profits are shared equally between the developer and the lender.


Exploring Alternatives: 100% Funding without Profit Sharing

While 100% development finance usually involves profit sharing, it is possible to secure development finance without a deposit or profit-sharing arrangement through alternative means. In these cases, additional security is required instead of a deposit. This can come in the form of a charge over another property or properties, such as your own properties, investment properties, or land.


Can I Get 100% Development Finance?

Yes, it is possible for property developers to obtain 100% development finance. If certain criteria can be met, such as having relevant experience as a property developer, obtaining full planning permission, and demonstrating the profitability of the project.


Brokers can greatly assist in improving your chances of securing 100% development finance. They offer expertise, connections, and market insights, helping borrowers with application preparation, negotiation, and accessing suitable lenders, ultimately increasing the likelihood of obtaining funding for ambitious property projects.


At MRG Private Clients, we believe in providing our clients with personalised guidance and support when it comes to making important financial decisions. We are based in Medway, Kent but offer our specialist mortgage services nationwide. Learn more about our specialist mortgage services >

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