One of the most frequent questions that independent financial expert Mike Collins gets asked, is how best to fund property builds and renovations. With 17 years’ experience in the industry, Mike has this advice for anyone looking to kickstart large-scale development or buy-to-let property.
“Property finance is an umbrella term that applies to lots of different funding options, for example, bridging loans or property development loans,” he said.
“So, whether you’re an individual with a personal house renovation or you’re a developer, there is a range of funding options available for commercial, residential and mix-use projects.”
Mike Collins advises on some of the methods to fund your property project:
Figure out which finance options suits your project
When house buyers want to get started with renovations or property developers have major land to acquire, they often need financing. Often, this takes the form of a short-term, high interest loan.
However, it’s important to note that eligibility criteria do vary and often depends on how good your business plan is or what your personal credit score is like.
Bridging loans
This type of loans offers a short-term solution to provide cash fast. If you don’t want to let your dream house get away but haven’t sold your current home yet, it may come in useful. Perhaps you want to buy a property at auction and need the money immediately.
Bridging finance can also be used for lighter refurbishment at your current property such as decorating, plastering or a new boiler.
If you need cash quickly, this is also a great option with money available in as few as three days. However, interest rates are much higher than other finance products but can be affordable due to their short-term nature.
A bridging loan credits you for that brief period until your property is then sold, and you have the funds to pay back the amount.
Property development loans
A property development loan is paid out in stages of a bigger development project. It is usually paid out in chunks like this:
- The first payment usually the purchase of a development site. It could buy land for a series of new properties to be built on or fund an existing property that needs refurbishment.
- The second part of the loan is used to pay for any building work costs associated with the project. It can be handed out in stages (known as staged drawdown) as planned works are completed.
The loan is agreed at the outset and repaid through mortgage finance or via the sale of the property.
Buy-to-let mortgage
If you want to buy a house and then rent it out, you can apply for this mortgage. Take care to check out terms regarding subletting and letting.
Unlike a residential mortgage, lenders may ask for a 25-40% deposit. You may also experience higher fees and you may find most of these mortgages are interest-only.
Personal loan
Also known as an unsecured loan, this type of finance is not secured against your property or any other asset. What they are, is a fast credit choice which would enable you to buy a large asset such as a property.
You can choose to pay fixed repayments and your best action would be to pay the loan back in full by the end of the term.
Cash
Cash is the easiest way to finance property development. It’s always great to use if you have it as you can avoid high interest rates and loans. Pay as much as you can in cash as deposits to avoid debt later on.
