How To Finance Your Property Development

When it comes to property development, the majority of developers will need access to some form of finance to help them enter the market or expand their portfolio.Whether the money is for purchasing a property, acquiring land, or to go towards renovation costs, when a large sum of money is required, finance is often needed.Fortunately, there are many funding solutions available, but as a new developer, the options can be overwhelming.In this article, we’ll take a brief look at some of the most common funding options available for property developers to consider.

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1. Commercial Mortgages

A commercial mortgage is very much like a high street mortgage, except they are only provided for buying or refinancing properties of commercial use (such as shops, offices and restaurants) or for buying land for commercial development.They can also be used to expand an existing business and for residential or commercial property development.Property developers often use a commercial mortgage to purchase, renovate and resell a property for a higher price.Commercial mortgage applications are more likely to assess your eligibility based on your business income and assets, rather than your personal income.  Additionally, a detailed business plan may also be required, especially for first-time developers.

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2. Property Development Finance

Property development finance is often used by experienced developers for a range of reasons, mainly to renovate a single residential unit or for constructing new build residential developments.Property development finance provides a larger portion of build costs in advance and is ideal for large scale construction projects as it allows the developer to borrow the loan in stages as the project progresses.Property developers commonly use development finance as the funds are available much quicker than a mortgage, meaning they can act quickly on opportunities that arise.Lenders take a variety of approaches in the application process; however, all will assess the build type, valuation, developer history, borrowing circumstance, the strength of the project, security and rates.

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3. Mezzanine Finance

Mezzanine finance is often referred to as a second charge loan and acts as a top-up to any current loan a property developer has in place.They are commonly used by property developers to bridge the gap between a development facility or loan, and the amount of equity or funds that a developer has to invest into the project.By supplementing their borrowing with mezzanine finance, property developers can secure the highest return on investment, with the lowest deposit contribution.Mezzanine funders will usually take a second charge over the development to ensure their capital is secure.The finance is available for residential and commercial development schemes, although often only provided to experienced property developers.

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4. Bridging Loans

Bridging loans are a popular solution for property developers that need to stump up the funds needed to take on a project.They are most commonly used to bridge the funding gap when developers need the cash to renovate a property, wait for a sale to complete or for other forms of funding to clear.They’re a short-term interest-only loan and widely used due to their fast accessibility, meaning developers can seize opportunities and agree to projects instead of missing out on them.Unlike traditional forms of finance, bridging finance can be secured on any type of property including flats, houses, auction properties, unhabitable properties, unmortgageable properties, commercial units and land - making them a great solution for property developers for a wide variety of reasons.

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5. Auction Finance

Auctions are a popular marketplace for property developers to purchase property at a below-market price. When winning the bid, the funds usually need to be paid within 28 days, which means the developer has to move fast to secure the funding.Most properties today exceed six figures in value and even a 10% deposit can be a significant chunk of cash.Auction financing allows developers to get the money they need to make the purchase quickly.The funds can be arranged in advance, so before the hammer falls, the buyer knows exactly what budget is available to spend as well as the property specifications the lender will fund.

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How to get funding for your property development

Many developers fail to get funding through high-street banks and the next common option is to approach alternative lenders. Specialist lenders offer more of a made to measure approach with increased flexibility than most high street providers.Although the specialist lending market can appear complex for first-time developers, many developers are succeeding with their projects due to accessing funding this way.Whether you are an experienced or first-time developer, the experienced team of advisors at Ramsay & White can access a wide variety of market products and structure the right deal for your project.Get in touch today to find out how they help.

At Ramsay & White, we specialise in securing  finance for first-time and experienced developers and investors.

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