Looking for your first project? We can help guide you through the available products and any potential pitfalls of development finance.
Renovating a property to live in, sell on, or rent to tenants, can reap financial rewards if done correctly and one of the most appealing aspects of property development is anyone can do it. If you need some help with the terms used try our jargon page.
There are risks involved and anyone considering property development should be in a stable financial position, research is key, which means:
– Finding a property in the right area
– Setting a budget for the property
– Setting a budget for refurbishment costs
– Factoring in professional fees: solicitors, valuations, inspections and brokers
– Calculating finance fees
– Considering Capital Gains Tax and Stamp Duty,
– Finding good tradesmen (if needed)
– Targeting a tenant or buyer
– Structural issues
– Remembering it’s not for personal use (if selling on or renting)
– Making sure there is a profit to be made.
From a finance perspective being a first time developer is a risk for a lender to lend money to so there only a limited number of lenders to approach. Whether you can borrow money on the property also depends on the condition of the property and what the end intention is.
Finance for developing property is usually done through short term lending. These types of lenders and products can go to offer quickly and can lend on properties that are in poor repair- where traditional mortgage lenders won’t. Terms are typically between 1-24months and loan to values of up to 75%. The downside is interest rates are higher, generally starting from c0.6% per month.
They can be broken down into three types of short term lending:
– Bridging finance; meant for properties that need only a small amount of work to sell or remortgage such as decoration, rewiring or plumbing. Can also be used when being a sale needs to complete quickly or being bought at auction.
– Refurbishment finance: intended for when a property requires work to become in a mortgagable or saleable state, this includes work such as internal reconfiguration or new windows, kitchens or bathrooms
– Development finance: this is for properties either in need of heavy refurbishment, such as structural work or requiring planning permission, conversions or building brand new properties.
Below are some examples of how the different types of end scenarios, when works are complete, can influence the type of finance used but as each development is different we recommend talking it through with a broker, to make sure you are have the right solution.
– Sell the property when finished: you could purchase and fund the property through short term finance, taking into account the length of time to complete and sell the property and set an appropriate length of term.
– Rent out the property: depending on the condition, if it is already lettable or not, you might need bridging or refurbishment finance to begin with and then once the works are complete you could then refinance onto a traditional Buy to Let mortgage.
– Moving into the property: if the property is a mortgagable condition then you could purchase the property with a standard residential mortgage and complete the works, sometimes whilst living there. If not you will need short term finance then once the works are complete, refinance onto a residential mortgage.
This is the most common type of project for first time developers and the most likely to have an application for finance accepted.
It covers work on properties anywhere from decoration and plumbing to internal reconfiguration and new bathrooms or kitchens.
This includes converting a commercial unit into residential, barn conversions, loft conversions, work with planning permission required and splitting houses into flats.
Depending on the type of conversion and your level of experience will determine whether you can get funding or not.
This is the hardest type of funding to get when you are a new developer as lenders want to see proven experience in completing these types of projects before lending.
The most common scenario for first time developers to get funded like this is when building a new build property on piece land already owned for example splitting the title on the residential property and building a further unit.
You will need an evidence of an experienced builder being used and sometimes an outside project manager.
– 75% Loan to Gross Development Value
– Rolled up interest – no monthly payments, interest is either deducted from loan amount or paid at end of the term
– 100% of build/development costs available (for experienced developers)
– Joint venture deals
– Access to broker exclusive products
– Mezzanine finance
– New build, refurbishments or conversions
– Residential or commercial developments
– 1 to 24-month terms
– Adverse credit accepted and no location restrictions
Your property may be repossessed if you do not keep up repayments on your mortgage.