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How Development Finance Helps Finance Property Development

How Development Finance Helps Finance Property Development

by | Mar 29, 2023 | Advice

Property development is a complex and capital-intensive process that requires significant financial resources. From land acquisition to construction, marketing, and selling, property development requires a lot of capital to successfully execute. Development finance is a critical component of financing property development projects. In this article, we will discuss how development finance helps finance property development.

What Is Development Finance?

Development finance refers to the financing of projects that promote economic growth and development. The primary focus of development finance is on investments that generate positive social and economic returns over a prolonged period. Development finance is usually provided by banks and development finance lenders such as BLG. Development finance lenders are specialised financial institutions that provide financing to support developers.

Development finance can be used to finance a broad range of projects, including infrastructure development, agriculture, education, healthcare, and property development. In the case of real estate development, development finance is provided to support the financing needs of property developers.

Types Of Funding

Residential development finance and commercial development finance are two types of funding options for property development projects. The main difference between them lies in the type of property being developed.

Residential development finance is used for funding residential property development projects such as housing estates, apartment blocks, or single-family homes. On the other hand, commercial development finance is used for funding commercial property development projects such as office buildings, retail centres, hotels, or industrial units. The lending criteria and terms for both types of development finance can differ significantly.

These can then be split further into different types of finance such as mezzanine development finance and stretch senior development finance.

Learn more about the types of development finance.

How Development Finance Helps Finance Property Development

There are various ways in which development finance can aid developers. The financing can be structured in a way that allows the developer to acquire land without having to pay the full cost upfront. This can help developers conserve their cash flow and improve their ability to fund other activities.

Land Acquisition

One of the significant challenges facing property developers is acquiring land for development. Land acquisition is often one of the most significant expenses in property development. Often developers require significant financial resources to acquire land for development. Development finance can help property developers acquire land by providing financing for land purchases.

Construction

Construction is another significant cost in property development, and developers require significant financial resources to complete construction projects. Development finance can provide developers with financing for the construction of residential and commercial buildings.

Marketing And Selling

Marketing and selling are critical components of property development. These costs are typically funded out of property sales.

Job Creation

Property development is an essential driver of job creation. Development finance can help property developers create jobs by providing financing for construction activities. The financing can be structured to incentivise the developer to hire local workers and use local materials. This can help create jobs in the local community, which can help promote economic growth and development.

Economic Development

Property development is an essential driver of economic development. Development finance can help finance property development projects that can promote economic development.

Development Finance From BLG

Property development is a critical driver of economic growth and development. However, it requires significant financial resources to successfully execute. Development finance is a critical component of financing property development projects. It allows developers to acquire development land, purchase development rights and cover the costs associated with construction and marketing. With the help of a lender, developers can bring their projects to fruition and grow the economy.

BLG is a principal lender specialising in development loans. Providing both residential and commercial development property finance. Ranging from £1 million to £15 million, with competitive terms over 12 to 24 months. Our financial experts take the time to get to know you and your property development project to ensure you get the right loan. Contact BLG today to start your development journey.

Current State Of The Development Finance Market

Current State Of The Development Finance Market

by | Feb 8, 2023 | Latest News

As the economic outlook continues to change, the current housing market and interest rate environment have had a significant impact on property development finance. With house prices falling and interest rates increasing throughout 2021 and for most of 2022. The pace of which being greater than previously seen in the 2008 global financial crisis. When the Bank of England raised interest rates by 0.75 percentage points to 3% on the 3rd of November, it was the biggest single rise in the cost of borrowing since 1989. However, due to soaring inflation, last week the Bank of England raised interest rates once again to 4%, the 10th rise in a row. Therefore, making mortgages more expensive and higher inflation puts further pressure on mortgage holders and businesses struggling to pay off their loans.

Our managing director Stuart Parfitt comments, “2023 is going to be a tough year generally and there are some macro-economic factors that make any forecasting challenging. However, by Easter 2024 I would expect to see the mood to be more positive”.

How SME Enquiries Have Been Affected

Stuart comments on how enquiries have fluctuated from SMEs looking for loans. “The turmoil after the Truss/Kwarteng budget appeared to cause enquiries to stagnate but as markets have normalised the enquiry flow has improved. Planning delays continue to represent the main hurdle to increased house building and development lending activity. Although appraisals are now factoring in higher interest rates and flat or decreasing future house prices, putting downward pressure on land values. Land sellers are beginning to accept this is a new reality.”

Type Of Developments BLG Support

Although the average house prices and rises in interest rates are falling, BLG’s lending profile remains unchanged. With the main focus being on standard housebuilding and unit values from £250,000 up to £750,000. Alongside SME developers that can generally bring equity of around 20%. Parfitt adds, “Houses are slightly preferred over apartments but as long as the location supports flat buyers, we are happy to support a suitable scheme. Most regions are acceptable but with build cost inflation we are starting to see appraisals where construction costs exceed 60% of sales values in more remote or areas of lower economic activity”.

Contact our financial experts today who can talk you through your options. They will take the time to get to know you and your aims.

Construction Activity Falls At Fastest Rate Since Covid Began

Construction Activity Falls At Fastest Rate Since Covid Began

by | Jan 17, 2023 | Advice

The S&P Global/CIPS UK Construction Purchasing Managers’ Index has shown a huge decrease in activity within the construction sector. Finding the activity had fallen to an index score of 48.8 in December 2022. This was down from 50.4 in November. To put this in perspective any score below 50 represents a contraction in output. Whilst above 50 represents growth.

This, therefore, marks the end of a three-month period of growth within the sector. December is the first time that housebuilding activity has declined since August. This is the fastest decline since May 2020, during the first covid lockdown.

Housing Experts Comment

John Glen, the chief economist at CIPS, commented “The construction sector was stuck in the mud in December with the steepest fall in activity since the beginning of the pandemic in May 2020 and a similarly fast drop in pipelines of new work.” He explains that supply chain managers have “reined back spending” on building materials. This is reportedly the steepest fall in buying behaviour for over two and a half years. Glen also added that “Builders were reining back on recruitment unconvinced there will be enough growth in the UK economy in 2023 to justify additional expenditure when margins remained so squeezed. Builders are fast running out of the resilient spirit maintained over the last couple of years as the blocks to success piled up and the winter of discontent, with high inflation, strikes and shortages, continues”.

Lewis Cooper, S&P Global Market Intelligence economist stated that it was a “poor finish” to 2022 for the UK construction sector. “With the outlook turning negative, staffing levels declined for the first time since the start of 2021 in December. The data shows that companies are preparing to face significant challenges in the months ahead,” he stated.

Further Challenges

Although there were falls in activity the average lead times are at the highest since June. Industry experts have stated this is due to product shortages and shipping issues. In addition, construction costs increasing due to energy prices, materials, and fuel costs.

Scape chief executive Mark Robinson comments “The construction industry is braced for a tough year and, while there are positive signs that inflation has peaked, increased material costs will undoubtedly continue to shape the plans of developers and local authorities – that latter of which will be confirming their annual budgets this month,” he said. Maintaining clear, positive dialogue in 2023 will be crucial if projects are to progress uninhibited, and calm and cautious management will likely pay dividends further down the line when purchasing decisions are ready to accelerate again.”

Furthermore, the Bank of England’s interest rates have been rising steeply. These have now hit a 14-year high in December with a rate of 3.5%. According to Halifax, the average house price in the UK fell for the fourth month in a row in December, dropping by 1.5% compared to November. Halifax Mortgages director Kim Kinnaird commented “Some potential home moves have been paused as buyers feel increased pressure on affordability. And industry data continues to suggest many buyers and sellers are taking stock while the market continues to stabilise”. Last month Halifax forecast an 8% house price fall for 2023.

How Development Finance Could Help

Development finance is short-term funding for large-scale property development and construction projects. It can be used to fund the purchase of land as well as building costs. If you are struggling with the current economic climate and need further support to start your development project, BLG is here for you.

We are a leading principal lending specialist in property development finance, we are positioned to help you. Providing residential and commercial finance ranging from £1 million to £15 million we have the ideal skill set to lend and advise. Priding ourselves on fast decisions and flexible terms we can aid you through these turbulent times.

Contact our financial experts today who will take the time to get to know you and your aims.

A Guide For SME Developers Around ESG

A Guide For SME Developers Around ESG

by | Dec 8, 2022 | Latest News

It is widely reported that the construction and development sector has one of the largest business footprints. Construction building is accountable for around 40% of all global energy consumption. In addition to 23% of air pollution, 40% of drinking water pollution, and 50% of landfill waste. Cement alone is a high contributor, accounting for around 8% of global carbon emissions. Every construction step has an impact on the environment. From the materials and technology used as well as the construction sites built. As a result, many experts are calling for the construction sector to act and move towards an ESG framework.

What Is ESG?

ESG is a collective term made up of three components: environmental, social, and governance. All of which measure a business’ impact on society, and the environment, and how transparent and accountable they are. In addition to how robust and transparent its governance is – this is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.

What Does This Mean For The Construction & Development Industry?

Within the construction industry and for SME developers there are key considerations that need to be looked at under an ESG framework:

Many current ESG requirements are outlined within Building Control requirements.

Why Implement ESG Principles?

According to CBI the UK’s premier business organisation, two-thirds of investors consider ESG factors when investing in a company. Thus, they are looking at not only the growth of the business but also the impact on the environment and community. Additionally, PwC reported that over two-thirds of customers would buy from companies that support ESG initiatives with customers more willing to pay more for greener products. Lastly, research conducted by LinkedIn found that 71% of professionals would be willing to take a pay cut in order to work with a company that shares their values. In addition, 39% would leave their current role if their employer were to ask them to do something that was against their morals. Therefore, even for SME developers, companies who adopt an ESG framework can benefit greatly. Including reducing risks, securing investments, lowering costs, and increasing reputation leading to more new customers.

How To Implement ESG For SME Developers

Implementing ESG as an SME builder comprises a three part process:

  1. Firstly, a business has to measure and understand its current impacts such as carbon emissions. British Business Bank has summarised some steps on how to measure ESG. These include deciding what to measure, gathering the information, and including stakeholders.
  2. Based on this analysis, a business then has to outline goals and ways in which to improve these. Such as reducing energy use or improving employee well-being.
  3. The next step is to roll out the ESG program to your company to improve the overall baseline and impacts.

Although every business is unique in the way it operates and is set up, there are some core principles that can be followed. British Business Bank has outlined how to implement ESG. These include creating a team, investment, measuring, and communication.

One important factor to consider is that ESG is here to stay and many lenders will start having ESG criteria and metrics for their borrowers.

Help To Buy Scheme Deadline Extended

Help To Buy Scheme Deadline Extended

by | Dec 5, 2022 | Advice

Following our previous blog “Help To Buy Scheme To End” there have been further developments. Housing minister Lucy Frazer has confirmed that the practical completion deadline has been extended by one month.

This has come from the construction industry explaining the various delays outside the home builder’s control. This includes supply chain and labour issues and thus a number of reservations would be at risk of missing the government’s Help to Buy deadline.

Therefore, if a property is going to miss the original Practical Completion date of the 31st of December 2022, this has now been extended to the 31st of January 2023. This forbearance is only available to customers who already have an Authority to Proceed (ATP) or Authority to Exchange (ATE) in progress. No cancelled applications will be reinstated, and no new or additional reservations can be submitted. Additionally, the clause of this is developers have to notify Homes England (in writing) by 20th of December 2022.

Home Builders Federation has commented “Homes England will shortly contact all developers with an active reservation, notifying them of the amended first longstop date. As part of the correspondence, developers will receive access to an online form requiring details of each individual reservation that will make use of the additional forbearance period. There will be no extension to the deadline for this correspondence of December 20, 2022.”

However, the final legal completion deadline of 31st of March 31, 2023, still stands, as confirmed by Lucy Frazer.

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