Property development finance in Scotland

Property development finance in Scotland works much as elsewhere in the UK. A lender funds part of the site purchase and most of the build costs, releasing money in stages as a monitoring surveyor confirms the work. The loan is repaid when the finished units are sold or refinanced onto longer-term lending at the end of the project.

The differences are legal and regulatory. The lender's security is a standard security under Scots law, solicitors qualified in Scotland carry out the legal work, and Scottish planning and building standards apply. Not every UK development lender lends in Scotland, so the choice of lender can be narrower.

A development lender in Scotland takes a standard security over the site, created under the Conveyancing and Feudal Reform (Scotland) Act 1970 and registered in the Land Register of Scotland. Registration is what makes the security effective, so lenders need the title to be clear and any existing securities discharged or ranked before the first drawdown.

Where more than one lender is involved, such as senior and mezzanine lenders, a ranking agreement sets out who is repaid first. The legal work also checks servitudes, title conditions and access, which can affect both the build and the value of the finished scheme.

Most Scottish developments need planning permission from the local planning authority and a building warrant from the council's building standards service before work starts. Lenders usually want both in place, or a clear timetable to obtain them, before releasing build funds. A completion certificate is then accepted by the council once the work meets the warrant.

Planning in Scotland is governed by the Town and Country Planning (Scotland) Act 1997. Sites bought before planning is granted are often funded with a short-term loan first, then refinanced onto development finance once permission is in place.

Lenders look at the site value, the total build costs, the gross development value of the finished scheme and the developer's track record. They also check the professional team, the contractor and the build contract. Local sales evidence matters in Scotland, because values vary widely between cities, towns and rural areas, so the valuer's view of demand is key.

The loan is usually limited to a share of the total costs and of the gross development value. How these measures work across the UK is explained in the development finance section.

Development loans in Scotland are repaid by selling the finished units or refinancing onto investment lending, for example if the units will be let. If sales are slower than planned, a development exit loan can repay the build lender and give more time to sell. Costs include interest, arrangement and exit fees, monitoring, valuation and legal fees.

On a site purchase, Land and Buildings Transaction Tax, collected by Revenue Scotland, applies to the site purchase instead of Stamp Duty Land Tax, and the rate depends on whether the site is residential or non-residential. Firms that arrange Scottish development lending can be compared on the development finance brokers page.