I’ve heard a lot of complaining from my close Property Developer friends about a lack of mortgage products in the market for developers. Borrowing money on assets that are worth less than the market rate isn’t something banks like to do, so there’s nothing new here. However if you are struggling to get the finance you need and you’ve tried independent advice to no avail then you could try these sources. Just keep in mind I’m not offering financial advise here, just some good sources of info for your own due diligence.
Financing a new build/ Self Build
If you are new to Property development you will struggle to find finance to complete your initial project. Lenders prefer to see a ‘track record’ of development before they will consider any lending. One way around this is to provide more than the usual deposit. If you are looking to buy land with planning, you might want to consider buying the land outright. Lenders may also want to see a project plan and costs submitted by a professional such as a project management firm or an architect.
Before you approach anyone for finance make sure you prepare a business case of the proposed development to avoid any questions later in the application process. I would advise presenting the following;
- Copy of planning application and any agreement letter
- Details of any Section 106′s or any planning retrictions
- Details of existing and propsed plans
- Cost schedule (including purchase price, fees, renovation/construction costs)
- An amount for contingency (Between 10% – 15% of total build costs is usual)
- Estimated end development value (provide proof of similar properties)
There are a number of sources for Property Developers including BuildStore who offer a range of self build mortgages for developers. There are also a number of building societies that offer self build mortgages for developers. Try Norwich & Peterborough, the Progessive Building Society & Darlington. You may need to go through an advisor to get direct comparisons between products. Remember to take into account the cost of fees and arrangement when you look at initial and variable rates. Its the total cost of the loan you should compare not just the rate, which could be for an initial period only. Again, ask your advisor if you’re not clear on anything.
Renovation & Conversion Finance
Renovation & Conversion Finance can be a little easier to find especially if you’re looking to stay in the property whilst the work is being carried out. If you’re not then you may be forced to buy additional insurances to protect the property whlist the project is under completion.
Just like self build mortgages Renovation and conversion mortgages tend to come with ‘strings attached’. Traditional mortgage lenders prefer to see a home that can be lived in from day one. This way there money is secure. Remember Banks don’t take risks, you do!. By far the easiest way to raise this sort of finance is to raise it on an existing property. However, if your Property Development is new this might not be possible. In which case there are a number of Renovation and conversion Mortgages available on the market.
Like Self Build mortgages payments are made in stages of works completed. Here’s an example:
- Stage 1: Purchase of property
- Stage 2: Preliminary costs and structural work
- Stage 3: Watertight
- Stage 4: Plastering and services
- Stage 5: Second fix
- Stage 6: Completion
Each stage is assessed by the lender which is why most renovation and conversion mortgages attract such a high admin fee. Again try, BuildStore who are specialists in renovation mortgages for developers.