Why experience matters to lenders
Development lenders are relying on a scheme being built to budget and on time before it has any value to repay the loan. A developer who has done this before has shown they can manage contractors, cash flow and problems on site. Without that history, lenders look for other ways to gain confidence.
Relevant experience is broader than completed developments. Lenders will consider refurbishment and conversion projects you have managed, a career in construction, surveying, architecture or project management, and experience as a landlord. Setting this out clearly, with addresses, costs, values and your role in each project, helps the lender see what you bring.
Some lenders on the market only fund experienced developers. Others welcome first-time developers, usually on more conservative terms. Knowing which is which avoids wasted applications.
Building a team lenders can back
For a first scheme, the team around you carries much of the weight. Lenders commonly look for:
- A main contractor with a track record on similar schemes, ideally on a recognised fixed-price form of contract
- A project manager or employer's agent to oversee the build on your behalf
- An architect and structural engineer appointed through the design and build
- A quantity surveyor to check the budget and cash flow
- A solicitor experienced in development work
Partnering with an experienced developer in a joint venture is another route. The partner's track record supports the application, and in return they share in the profit. The terms of any partnership need careful legal advice.
What terms to expect
Lenders that fund first-time developers usually offer more conservative terms than they would to an experienced developer. Expect a lower loan to gross development value, often around 60% to 65% rather than higher, a lower share of costs funded and so a larger contribution from you. Personal guarantees are standard.
Smaller, simpler schemes are easier to fund for a first project. A single house, a pair of semi-detached homes or a straightforward conversion carries less risk than a large block of flats with basement parking. Some lenders set a maximum number of units or a maximum loan size for first-time developers.
Costs include arrangement and exit fees, valuation and monitoring surveyor fees, legal costs and rolled-up interest on the funds drawn. Your appraisal should include all of these, along with a contingency, so you can see the profit after finance.
Stepping up from refurbishment
Many developers build their record gradually. A heavy refurbishment or a conversion of an existing building can be a practical first project, because the structure and services are partly in place and the programme is often shorter than a ground-up build. Lenders that fund these projects through refurbishment bridging may also be more open to borrowers who are new to development.
Each completed project adds to the case for the next. Keeping a clear record of what you bought, what you spent, how long it took and what the property sold or refinanced for makes later applications to development lenders more straightforward.
Preparing your first application
A clear, complete application matters even more when you have no track record. As well as your team and experience, lenders will want a full development appraisal, detailed planning permission and a note of any conditions to discharge, a build programme and contractor quote, and evidence for the gross development value from agents and comparable sales.
Be realistic about the timescale. Lenders want to see the term allows for the build, sign-off, warranties and sales, with headroom for delays. A structural warranty from a recognised provider, arranged before work starts, is usually required for the units to be mortgageable.
We compare lenders that consider first-time developers, then approach those that fit with a well-presented case. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and checks.
