Property Development Loan: Loan to Develop Your Property


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The group of words “Property Development Loan” is self-explanatory-A loan which is borrowed to develop properties. There are lenders who offer property development loans on the basis of profitability of the property project.

A property development loan is a type of loan offered by a lender, usually bank, to an entrepreneur or for that matter any organization, for development of a property. In this case, like any other category of loan, the lender lends the money for certain duration of time at a certain rate of interest, which becomes the profit for lender. On its part, the borrower agrees to pay within the decided time period in the mutually decided number pf installments. Almost all property development loans are construction linked, which means instead of disbursing full payment at one time, certain percentage of loan amount is given in the beginning and then rest amount is given in phases, a certain percent of the total amount at a time, depending upon the percentage of work done.

One of the most important factors in property development loan is that few lenders ask the borrower to invest his portion of money in project development before they disburse the first installment of loan. Subsequently, lenders pay in the ratio of project completed.

Property development loans

In case of property development loans, loan amount depends upon the profitability, viability and risks associated with the property development project. Similarly, rate of interest charged by lenders depend upon the profitability and risks associated with the project. If the project seems risky or viability is not guaranteed, lenders charge higher interest than a project which is sure to be profitable. This higher interest rate is charged by lenders to compensate against the increased risk associated with the property project. Some of the key features of property development loans are:

Loan amount (criteria varies from lender to lender; some of the common are give below)

Loan amount depends upon project profile

However, usually it is up to 100% of the cost of the project

amount varies between £30,000 and £30 million

Up to 70% of the land cost and 70% of the building costs

Repayment period: Up to 12 months

Interest Rates: Variable rates, generally between 2% and 3% above the Bank of England's base rate.

Repayments: On project completion

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