Lending to property developers

How a loan to a property developer works

A developer raises capital against property already held - a site, a part-built project, or completed stock awaiting sale - and the file is read on the project, the security and a credible exit, not on serviceability. The instrument follows where the gap sits. To hold or settle a site, a land loan or an equity release against owned land. To build, development finance or construction finance drawn progressively against a quantity surveyor’s reports, with mezzanine finance to stretch the senior position where equity is tight. For an inter-stage, settlement or deposit gap against property already owned, bridging finance, a faster caveat loan or a second mortgage. On a build the sizing moves from a simple combined LVR to the land’s as-is value, the cost to complete and the end value, with the project margin and exit weighed together. Representative ranges sit on the rates and fees page, subject to assessment.

What the project changes

A bank’s construction credit team usually wants pre-sales covering a large share of the debt before it will move, and runs the file over weeks. This route can weigh the same project on its feasibility, gross realisation value and a credible exit instead - and the exit is the single most weighted line, the thing that carries a file with no pre-sales. Interest is typically capitalised inside the facility, so there’s no monthly servicing during the build; it is settled at exit, from end-sales or a refinance into a residual stock facility. A developer almost always borrows through a company or trust for a business purpose, which keeps the assessment on the asset and the exit - confirmed by a business purpose declaration rather than lodged financials. The matching purpose page, funding a property development, covers the job from the project’s side.

Buying a run-down property to renovate and resell

A smaller project follows the same logic. A company buys a tired or long-tenanted house below the median for its suburb, reconfigures the layout, lifts the finish and sells on completion. The file is read on the purchase price, the cost of works, the realistic resale value and the margin left after finance, with the resale as the exit. Because a job like this usually runs a few months, often four to six, interest is normally capitalised into the facility so there is no monthly servicing while the works are under way; it is settled from the resale. The borrower is the company or trust, the purpose is business, and the security is the property being bought, sometimes with a caveat loan or second mortgage over another property the developer already holds to cover the deposit. Short projects of this kind are usually written as bridging finance or a short first mortgage rather than a staged construction facility.

What we’ll need to start

Four things give an indicative position: the site and its title; the amount and the business purpose; any existing mortgage and its balance; and the exit - the sale, the refinance, or the next stage. From there, the feasibility, a fixed-price building contract and a quantity surveyor’s report where a build is involved. Indicative terms from the funder within 24 to 48 hours of your reply, and settlement in days on a clean position. In plain terms, a speculative site with no development-approval path, or a project whose margin won’t clear costs and finance, is a conversation for a quantity surveyor and an accountant first. When the numbers are there, tell us what you need.