Development Loans In France

Bridging finance for development is used to build a new building or convert an existing building. This can be residential houses, shops, offices or industrial buildings. It can be for investment purposes or owner occupied. You can be an experienced developer / builder or a first-time developer:

  • A builder by profession who has purchased land and wants a loan to build houses that he will build and sell on. The developer may or may not have built from scratch before.
  • An experienced developer where we will source the best possible rate.
  • Someone building their own home.

The maximum you can borrow to purchase the site is anywhere between 50-60% of the purchase price depending on the project. The site would need to have planning in place or can be agreed subject to planning.

One can also borrow up to a 100% of the build cost provided that it is within 60% – 70% of Gross Development value (GDV) depending on the lender and experience (set on a case by case basis). Maximum term you can borrow for development finance is between 12- 36 months. Exit is usually sale of properties or refinancing.

Key Features of our Development Loans For France

  • Loans from £10,000 upwards
  • No tie-ins. In most instances you can repay the loan without incurring any early repayment charges
  • No experience is required provided a building contractors contract has been provided
  • Funds are available in stage payments and interest charged only on the money drawn
  • Can use other properties as collateral
  • You are not liable to borrow the full agreed amount should your build go below budget/plan

With french property development finance the valuations tend to be higher than standard valuations and take longer to perform.

Development loan rates will vary depending on the project and experience.

Advantages of Development Finance In France

The biggest benefit of development lending for France is the way in which it allows borrowers to access much larger sums of money. In fact, it is the most extensive borrowing facility currently available on the French property development market.

Initially, funds are provided to get the project underway. As the project continues, grows and edges closer to reaching its goals, more money is released for the developer along the way. The total sum of money lent can be up to 100% of the total cost of construction, with no specific upper-limits as to how much can be borrowed.

Additional advantages to development finance include:

  • The ability to secure money on properties, plots and developments that may be considered unsuitable or unviable by other lenders. This includes rundown and derelict buildings.
  • Development finance can be repaid relatively quickly, keeping overall borrowing costs to absolute minimums. Far more affordable than many long-term borrowing facilities.
  • Interest is only charged on the funds released which again can impact the overall costs of the facility in a positive way. A benefit of funds being released in stages throughout the project.
  • No specific limitations on how much can be borrowed. If the project is deemed viable, development finance may be offered to cover up to 100% of the costs, irrespective of the total construction cost.

What Are the Main Development Finance Costs?

Fees, charges and general borrowing costs vary significantly from one lender to the next. The following will apply in most instances as the primary costs of development finance:

Facility fee – More commonly referred to as an arrangement fee, the facility fee is calculated as a percentage of the total cost of the loan (gross or net).

Interest rate – Interest on a development finance loan can be charged on an annual or monthly basis. Annual interest rates of 7% are not uncommon, as are monthly interest rates of 1%. Longer-term facilities attach lower rates of interest, though cost more than those that are repaid quicker.

Exit fee – Sometimes called a completion fee, the exit fee is usually calculated as a percentage of the total cost of the loan (gross or net). Some lenders charge a percentage of the total value of the completed project – not the sum borrowed.

Broker fee – Some brokers offer their services free of charge for customers, receiving commissions from lenders upon successfully referring customers. Some brokers impose a fixed fee for their services or charge a percentage of the total value of the loan.

These are just some of the primary costs to take into account when considering French development finance. Working with an independent broker will help ensure you gain access to the best possible deal to suit both your requirements and your budget.

If a fee is charged, you will be informed of this in our initial quotation.

Other Development Finance Costs to Take Into Account

Additional development finance costs to take into account (which may or may not be applicable) include the following:

Valuation fees – It will usually be necessary for an initial valuation to be carried out by a neutral third party, in order to assess the open market value of the security. This will also typically include a projected valuation of the completed project.

Application fees – Some lenders and brokers impose fees simply for submitting an initial application, or seeking advice on development finance.

Legal fees – If it becomes necessary to hire a solicitor or seek qualified legal advice, the applicant will be responsible for meeting all such costs accordingly.

Administration fees – This is a somewhat vague term, which can apply to almost any additional cost imposed by the lender. Some brokers also charge administration fees –

Monitoring fees – Development finance lenders will naturally need to monitor the progress of the project, in order to ensure it is reaching its predetermined goals. This is to make sure their investment is sound, and the funds allocated are being used as agreed. All monitoring fees are picked up by the borrower.

Draw down fees – Each time a new installment of funds is transferred to the borrower, an additional fee known as a draw down fee may apply. This could be a set fee, or charged in accordance with the size of the installment.

Telegraphic Transfer fee (TT Fee) – This is a cost imposed by the banks handling the money transfers, which in the case of development finance can be comparatively large. Nevertheless, TT fees are generally quite small and charged at a fixed rate.

The Development Finance Process

Development Loans For France are always tailored to the requirements of the borrower and the specifics of the project. There are several key stages of development finance that remain relatively constant, which are as follows:

  • Initial enquiry and obligation-free consultation
  • Comparison of deals from specialist UK lenders
  • Submission of initial application to suitable lenders
  • Agreement in principle issued to the borrower
  • Site visit to establish the project’s viability
  • Independent valuation of the project’s total value
  • Formal loan offer and final terms
  • Solicitor involvement for legal support and advice
  • Completion of the loan and first payment (drawdown)
  • On-going instalments to fund the project
  • Repayment of the loan as agreed at a later date

How is Development Finance Repaid in France?

You will only be considered eligible for development finance if you can show the lender evidence of a viable exit strategy. This means the method by which you intend to repay the loan, which in most instances involves one of the following:

  • Sale of the property – where the property or site is sold upon completion of the project, raising funds to repay the loan in full.
  • Refinancing the property – a developer exit product (usually offered at a lower rate of interest) is taken out to repay the initial loan.
  • Long-term refinancing – suitable where the developer intends to retain ownership of the property long-term, perhaps to rent it out at a profit.

How Development Finance Facilities Are Typically Repaid in France.

Interest is usually added to a development finance loan on a monthly basis. This is why it is advisable to repay a development loan at the earliest possible stage, in order to minimise overall borrowing costs.

In most instances, the total balance of a development finance loan is repaid through refinance or sale of the property:

  • Build to sell – This applies when the developer completes a project with the intention to sell it (in full or in part) to cover the costs of the loan.
  • Build to rent – This applies when a longer-term borrowing facility is used to repay the initial loan, while enabling the developer to retain ownership of the property to rent it out.
  • A combined approach – This applies when the development is partially sold off upon completion, though a proportion is retained by the developer to be rented out.

Development Exit Finance

Some developers use developer exit finance to pay off their development finance debts prior to selling the development after its completion. The benefits of development exit finance include:

  • Increasing profits and cutting costs, as exit finance can be a cheaper alternative to development finance at this stage.
  • Bridging gaps between completion and sale, as the current loans term may come to an end before the sale is completed.
  • Freeing up capital at an earlier date, enabling developers to get started on their next projects before completion of the sale.

By definition, exit finance is a specialist type of bridging loan – offered with a low rate of interest and as a strictly short-term lending facility.

Whole Of Market Development Finance

You may have just been granted planning permission and been given the green light so that you can finally go ahead with a brand new building project or you are a couple of months from the finishing line with an existing development of the property. There is a chance that you will need to raise additional funds at some point in order to get to the stage where everything is finally completed.

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Development Finance France October 4, 2020