Property development schemes vary greatly, including the build type, the project size and the budget required. This type of project can be costly and you may not have adequate funds to proceed, needing development finance as a solution. This short-term loan enables you to build, convert or refurbish property, whether it’s a single unit or multiple ones. But what is the difference between commercial and residential development finance? We’ll explain this below.
What is residential development finance?
To build, convert or renovate a property that will have residential use, you need residential development finance. This applies whether your project involves just one home or a site for multiple homes. As the end use would be for residential purposes, residential development finance is needed when you convert the use of a commercial property to a residential one.
The types of properties that you can use residential development finance for include, but are not limited to:
- Family homes
- Student accommodation
- Flatted schemes
- Retirement accommodation
- Housing associations
- Mixed-use developments
If you or your immediate family intend to live in one of the properties or if 40% or more of the development is to be used for residential purposes, the finance will be regulated. This means that it will be governed by the Financial Conduct Authority (FCA), providing consumer protection.
You need to have an exit strategy when applying for residential property development finance, which is how you intend to repay the loan. For example, when your development project has been completed, you can sell the property or properties and repay the loan in full. Alternatively, you can refinance to a standard residential mortgage or a buy-to-let mortgage.
What is commercial development finance?
Commercial development finance is used to build, convert or renovate property that will have commercial use. This includes financing the development of a commercial property that you intend to use as your own business premises. It applies to single or multiple units that include, but are not limited to:
- Retail spaces
- Leisure facilities
- Industrial units
- Mixed-use developments
Commercial development finance isn’t offered by as many lenders as residential development finance as there’s more risk involved. As a result, lenders tend to charge more for these commercial loans than residential ones.
As with residential property development finance, you need to have an exit strategy when applying for commercial development finance. You can either sell the commercial property to repay the loan or refinance to a commercial mortgage.
We can arrange your commercial or residential development finance
Our development finance brokers, located throughout Kent, London and Edinburgh, are here to listen to your project plans and advise you on the right type of development finance needed to get your project underway. With extensive expertise in this area, they understand that each development project is unique, as are your circumstances. As such, they will ensure that you have all of the necessary information prepared to meet the lender’s criteria and will tailor your application accordingly. A bespoke development finance facility will be provided for you that meets all of your project’s needs. To get started, call us on 01322 907 000 for expert guidance from our development finance team.