When looking to take out residential property development finance the most important point to remember is that the rates of interest can vary considerably. Finance for development purposes is nothing like a personal loan and the terms and conditions of it go on the individuals circumstances. You get a lower rate and better deal the more experience you have. What you are intending to do will also go a long way to determining how much finance you will get.
The majority of lenders will give you an interest rate of around 1.5% and 2.5%. When it comes to getting the cheapest rate a specialist will be able to shop around with the whole of the market place to find you the best deal. Lenders are more tolerant of brokers and will allow negotiation to get the cheapest rate of interest based on the circumstances of the individual and their proposal.
The actual terms that residential property development finance is offered over will basically depend on the size of the project in question. Large projects which require substantial financing are often taken over many years and in this case the lender will propose an interest only loan. This means that throughout the period of the loan you will only be repaying the interest that accumulates on the loan. This will come with cheaper repayments than a repayment loan each month. There is a downside to this, when the term of the loan has completed you will still have to pay the capitol which was initially borrowed. A lender will want proof that you have the finances to repay this in total.
If your project is only small then you could consider a repayment loan. The biggest advantage to this is that you will pay off the interest and the capital throughout the term of the loan. By paying both back the monthly repayments will be bigger than those of the interest only, but once you have completed the term the loan will be fully paid back.
Finding residential property development finance that gives 100% finance can be hard. The criteria which a lender sets out will be harder to meet. Typically you can expect a lender to offer around 70% to 75%. This will be determined by loan projection costs, if the developer has plenty of past experience in similar projects and can show excellent projections then 100% might be given. When expecting to get the best rates a broker should always be used. Lenders prefer to work alongside a broker rather than an individual unless of course the individual has great experience in property development and the options for financing.
Residential property development finance should be given some serious thought. Sometimes a project will run into tens of thousands of pounds and so the best advice is essential. A specialist will always be there to help give you this advice every step of the way and work with you from start to finish. The fees that come with a broker can be well worth it in the end for the stress, time and money that can be saved.
By: Sean Horton
Posts Tagged ‘Lenders’
Residential Property Development Finance Can Vary
March 3rd, 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
