I have just applied for planning permission for a house that I'm going to live in. The question is where is best to get a development loan? I have several houses that I rent out already but I’ve never built a property before.
Development loans are for commercial projects that will be sold or rented out. When it is for a house that you intend to be your main residence, that all changes. What you need is a self-build mortgage.
What it is different is that it becomes an FCA regulated loan because you intend to live in it and that is a game changer for several reasons.
Only lenders that have been regulated by the FCA to lend on main residences are allowed to lend to you. Development finance lenders, by and large, will not have gone through the process of regulation because they only lend on commercially based projects, those that are built for profit. This means all such lenders are prohibited by the FCA from lending to...
If you’ve been growing your property portfolio and have a few conversions and refurbs under your belt, you might like the idea of becoming a developer and building a multi-home project yourself.
You may have been watching Grand Designs, the Big Build and other similar TV programmes and feel ready to tackle a bigger project with homes to either rent out or sell. However, it’s not as simple as a straightforward conversion.
Firstly, you’ll need specialist development finance - not a self-build mortgage or even a bridging loan.
Almost without exception development finance lenders want provable, documented, comparable experience that the borrower has successfully completed a project similar to the one they’re now seeking to fund.
These lenders have a policy of putting up barriers to entry and this lets them cherry-pick the projects that they see having a high chance of success. Development finance is not given for ‘on the job’...
If you’re looking at getting into new builds as part of your property investment, you need to get to grips with a different kind of funding.
You can’t get buy-to-let (BTL) mortgages for a new build and bridging lenders see this as a specialised area. However, there are lenders who do specialise in development finance.
Before I go any further, we are not talking about building your dream home a la Grand Designs. There are mortgages for people who want to self-build, but as a property investor, you will be looking for something different.
Development finance is usually for new build projects on greenfield sites, or demolishing an existing building on a brownfield site and rebuilding, or, in some circumstances, major conversions, but only if significant structural work is required.
First you will need to jump through some hoops!
Number 1 is experience.
Development finance lenders need to be confident that you know what...
If I have unencumbered property, i.e. no mortgages, what creative finance schemes/packages are available for short or longer term for development projects? I really want to avoid BTL finance.
If you really want to avoid BTL finance and are fortunate enough to have an unencumbered property, you are in a very powerful position.
You can offer that property as additional security/extra collateral for any development project you want to get into. That could mean that you need to put no actual hard cash into your project; save for survey and legal costs.
Both bridging and development finance lenders would typically lend you 70% (with slight variations) of the value of your property; as well as lending against the property you want to buy. This is usually sufficient to borrow 100% of the purchase price plus the refurb/conversion/build costs if you need to.
For properties that fall into refurb/minor conversion category, that would generally be bridging....
I want to get into building a brand new property, what type of finance is needed for this and how does it work?
New build projects require development finance and this is structured in a specific way. Pre-credit crunch this was freely available from the major banks, but they pulled out when the credit crunch hit, with disastrous consequences for many of their borrowers. They've never really got back into this area of lending again. The gap has been filled by small, specifically focused lenders who typically offer this type of finance and nothing else, although a few do offer bridging as well.
These lenders find it useful to erect barriers to entry that deter all but the strongest propositions for them to lend on. These barriers are:
Your money is required up front; the lender will fund...