Developing a property, workspace or piece of land can be a long and costly process. In the long run, turning a property into something practical and attractive can be extremely profitable.
Why it’s so popular
It’s the initial process that can leave developers short of funds as there are a lot of elements to find the money for; buying the land or building you wish to renovate as well as paying for workers, materials and equipment. Development lending allows builders and developers to carry out ground up projects by providing them with the funds to get the job done.
Furthermore, you could be in the position where you need finance to finish off a project. It’s certainly not unheard of for developers to get halfway through a project to then run out of money. It’s good to bear in mind that even though you think you may have budgeted enough, surprises can happen.
Types Of Development Lending
Bridging loans are one of the most popular forms of finance for developers because they release funds quickly and provide flexible exit plans- something that is imperative in property development.
Bridging loans, also known as buy to sell mortgages, are a form of short-term finance because they are normally used to flip property around quickly. They usually require a high deposit, normally around a minimum of 20-25% plus interest, which is also normally high on a bridging loan. The higher deposit fee and interest rates signify the high-risk element involved for the lender. Bridging loans are high risk for two main reasons; the property the loan is used to buy is normally unhabitable and secondly, there is a chance the house may not sell after it’s been renovated – meaning the seller may not be able to repay their loan.
Bridging loans may not be suitable for everyone, because they require a lot of cash initially in order to cover the deposit and interest rates. The plus side is that they don’t have as many restrictions as other forms of finance. Early repayment fees do not apply and you don’t have to wait 6 months before you sell because this type of loan is specifically tailored for flipping houses quickly.
Bridging loans are particularly suited to developers because you receive the funds really quickly and then you have the option to apply for a full mortgage on your newly renovated property if you wish.
You just need to make sure you have a good exit plan in place to show the lender it’s a good investment on their part.
Some Bridging Finance is not regulated by the Financial Conduct Authority.
In a similar concept to bridging loans, auction finance specialises in quick deals so you can get the finance you need to secure your dream project at an auction. Auctions are an incredibly fast-paced environment and auction houses usually require you to make the payment on your winning bid within a 28 day period, therefore, it takes a special type of finance to cater for something so quick.
Some lenders who specialise in auction finance may also be able to give you finance before you attend an auction – so if you find something you want, you will have an ‘agreement in principle’, allowing you to secure the property there and then. This option is not usually offered to inexperienced or new developers, because it will be a risk if the money is used impulsively – something that doesn’t sit well with lenders because if you can’t resell, you can’t make the repayments.
Some auction finance is not regulated by the Financial Conduct Authority.
Get in touch
If you are looking to enter into property development, or perhaps you are an experienced developer looking to find out some more information about the types of development lending and finance there is on offer, then contact Maple Leaf Financial today. We can give you expert advice on bridging loans, auction loans and any other types of development finance that may be suitable. We will then aim to tailor our expertise to your specific needs, so you can come away with new information and a strategy that allows you to take your next steps into the world of property development.