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Development Finance

Development finance can be used to finance both the land purchase and the build costs.  This type of finance is short term and can be used on small refurbishment projects, right up to ground up developments.  Usually lenders will lend up to 70% on the land and 100% of the build cost.  They will require you to pay for the first stage and pay you back in arrears.  Different lenders require different experience levels and it is always good to talk to our team and compare the best option for you.

Bridging

Bridging is a powerful tool and can be used in several ways.  Most common ways are buying a property which isn’t currently habitable/lettable (which is a requirement for a conventional mortgage), if there is a break in the chain and you need quick finance while the sale of your property goes through.  Unlike standard mortgages, with bridging finance you don’t pay a monthly interest instead the monthly payment gets added to the loan. 

Auction Finance

You have all seen the TV programs, where they go to auction, win the property, refurbish and then sale for a nice profit.  Looks easy right?  Well, it can be with the right team behind you!  Auction finance is a quick, short-term finance that allows you to buy properties at auction.  Buying at auction can be a great way of building a portfolio or making profit.  Talk to our team about auction finance options.

Commercial

A commercial mortgage is a loan secured on a non-residential property.  Examples of this are shops, commercial units and warehouses.  Commercial mortgages are for buying (or refinancing) any land or property for business purposes.  Similar to a traditional, residential mortgage, the loan is borrowed and secured against the property.

Frequently Asked Questions

Development finance

Development finance can be used to finance both the land purchase and the build costs. This type of finance is short term and can be used on small refurbishment projects to ground up developments. Usually, lenders will lend up to 70% on the land purchase price and 100% of the build cost. They will require you to pay for the first stage of the build e.g. foundations, and pay you in arrears for each stage of the build. Different lenders require different experience levels, and it is always good to talk to our team and compare the best option for you.

How much can I borrow?

Usually, a lender can lend 70% of the land/building purchase price and 100% of the cost of works. However, they will pay you in arrears for each stage, so you will need to fund the first stage of the build. A lot of lenders have a minimum loan size or profit margin so it’s best to talk to our team at Compare the Mortgage to understand your options.

What is meant by paying in arrears?

Most development lenders can lend up to 100% of the works to be done on the property. However, you will have to start the project initially and pay for the first stage, and they will pay you back in arrears for each stage completed. For example, the loan is £100,000 and there’s four £25,000 stages. You pay for the first £25,000, the lender will then send a valuer to inspect the work done. If they’re satisfied they will then release £25,000 to you for the next stage. This continues until the final stage where they release the final £25,000. You will only pay interest on the money you have used.

Part Complete Development

At Compare the Mortgage we are seeing more and more part complete development projects due to the pandemic. There could be several reasons why you couldn’t complete the project. There are development lenders that will repay the current mortgage and fund the rest of the project so you can complete the work. Again, this is complex and would depend on the GDV (Gross development Value) and the outstanding works. If this is the situation, we urge you to call our team to discuss.

Types of development projects

Light refurbishment – Usually modernisation works like new kitchen, bathroom, windows, decoration, central heating and electrics.

Heavy refurbishment – Usually structural changes. This could be adding or removing walls, part demolition and rebuild, conversions, converting into flats, extensions.

Ground Up developments – The name pretty much gives this away. This is finance that will allow you to build a new property either from the start or by knocking the property down and starting again. Very similar to how development works, however experience is vital.

How much will it cost?

Each lender will have different costs. You will need to factor in development costs, lenders fees which will include set up cost, interest, arrangement fees, exit fees. Professional fees which include solicitors, surveyors and brokers. You should always have a contingency fund, talk to our team to discuss.

Do I pay a monthly mortgage payment?

Most facilities are set up to allow monthly interest charges to be added to the loan. The interest will then be repaid when the loan is redeemed. Doing this will allow the developer to concentrate on the development rather than worry about the monthly outgoing on the loan.

How to repay the loan

A clear exit strategy is needed with all lenders, and at Compare the Mortgage we can discuss the options. Options could be, sale of the property, refinancing using a developer exit product or a longer-term finance such as a buy to let mortgage depending on the individual circumstance, and what you’re looking to achieve from the build.

Development exit finance

This enables you to repay any development finance before the sale of the development. There’s a few good reasons why you might want to do this. Firstly, this avoids tying up a large amount of cash until the project is sold. Secondly, you might be able to undertake multiple projects. Finally, you’ll be able to take on larger projects increasing your potential profits

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