The first thing to consider when dealing with development finance UK is the type of funding you need. There is a difference between refurbishment loans and property development finance. Basically residential development finance and commercial development finance is used to build residential and commercial property respectively, or to carry out large scale renovations to existing property. It would be used for a fairly serious property development or some major additions or building works to an existing property. Development finance entails large amounts which are benchmarked at about 150,000 pounds and up. On the other hand, refurbishment loans would be taken out if a property looks worn out and you would need some basic internal works. Renovating property tends to be small scale in nature so the refurbishment loans can suffice.
Refurbishment loans can be obtained with some Buy to Let mortgages and cover basic property renovations. Some lenders for commercial mortgages will allow you to borrow based on the enhanced property value after the end of the renovations, and not on the property price in its current condition. This way, it enables you to borrow further. In essence, you receive two loans: the loan on the current property value and the loan from the completed value. You will need to provide the valuer with a detail of the works you are carrying out. Then they will assess these once they are carried out to confirm the new property value. The Buy to Let mortgage route only applies if you plan to keep the property as a rented investment after works are completed.
A developer can get 100% development finance both for large scale property development and renovations. For 100% development finance in large scale projects, lenders tend to have strict requirement or high interest rates. For 100% development finance through refurbishment loans, which by nature is small scale, an additional security is usually required.
By: Cherry Lynn Bonachita
Posts Tagged ‘Buy To Let Mortgage’
Refurbishment Loan Vs Property Development Finance
April 4th, 2010How to Finance Investment Property – 4 Key Questions You Need to Ask Yourself!
February 25th, 2010
How to finance investment property is a question that anyone involved with making money from property has to ask themselves at some point. This article will help you to understand some things that you need to understand, and questions you need to keep in mind in order to finance investment property effectively and profitably.
What is the long term goal for the property?
This question is key because if you plan to renovate the property and sell it straight on then you will want to make sure that you have your finance set up in such a way so as not to incur large fees to pay off any loan you have taken out to buy the property. If you plan to rent it out and you are UK based then you will need a buy to let mortgage and you might want to have a fixed rate for a least a couple of years on the mortgage, especially if the interest rates are fluctuating at the time of purchase.
Do you have back up funding in place?
Ideally you want to have more than one lender as an option to fund your purchase; therefore, if the lender you are using gets cold feet or wants to back out for some reason, you have other options already prepared. This is particularly important in the current market place since we are in the midst of a global financial crisis and many lenders are either tightening their purse strings or filing for bankruptcy.
Are you credit worthy?
Even if you have bought investment property before, don’t take it for granted that you are credit worthy enough to buy it again. As a professional property investor or developer one of your main priorities should be to make sure that you have an impeccable credit history.
The strange thing is that this actually means having some debt. You could have 10 properties that you pay the mortgage for on time every month without fail, yet when you try to buy another one, they refuse you. There are many potential reasons for this, one of them being that sometimes lenders like to see you with some unsecured debt that you are paying off. If in any doubt as to your credit worthiness check with one of the top credit reference agencies to see what they have on file about you and to get some advice.
What are the tax implications of the purchase?
When thinking about how to finance investment property, you need to have a grasp on what the tax implications are for you personally to invest in the property you are considering buying. Sometimes it is better to buy property as an individual; sometimes it is better to buy as a company.
There is no hard and fast rule. A major consideration, is what are your plans for the future, if you plan to move abroad in five years for good, you might invest with a different strategy than someone who plans to live in their particular country for the rest of their life.
It is advisable to speak to a tax specialist about your plans for buying property and your long-term goals in life in general, so that you buy the right type of property in the right way. By doing this one thing you could be saving yourself hundreds of thousands of pounds in a relatively short period of time.
By: Carlton Johnson
