Ways To Find Your Residential Development Finance
A residential development project can be anything from building your own house
to live in, to a full-scale housing estate of 30 or more homes.
If you are embarking on a residential development project, there are a number of
different ways you can approach the task of obtaining
residential development
finance.
- If you are building a house for yourself and your family to live in, you
may be able to get away with a normal residential mortgage. However, the
security for the loan will have to consist of the existing property which
the bank can see, which at the time of applying for the loan will be just
the land. So you would probably only get a loan based on the value of the
land, which might not be enough to finance the complete development. You may
have to raise a personal loan to top this up, or you could refinance your
existing property if you have one.
- Generally, a residential mortgage is not suitable for a development project.
If you are developing the site with a view to selling the property on
completion, a standard 25-year mortgage is not sufficiently flexible for you
unless you plan to roll over the finance into a further project. You will be
better to look for a tracker or flexible mortgage that has no redemption
penalties. You can then choose whether you use the proceeds of the sale to repay
the mortgage, or put them into your next project. Alternatively you can make
overpayments into a flexible mortgage which will enable you to draw down the
finance as you need it.
- If you already own the site and are only looking for
finance for the
development, you can usually get residential development finance from the normal
range of lenders for 50-70 per cent loan-to-value. If you need finance both for
acquiring the land AND for developing it, lenders will usually provide a loan
for 50/50 if you are inexperienced – that is, 50% of the land purchase plus 50%
of the development cost. If you have previous experience, you can usually get
70/70.
- If you are developing the properties with a view to renting them out, you might well be able to use a buy-to-let mortgage. There are a wide range of buy-to-let mortgages available and many lenders base the amount they are willing to lend on the projected rental income, rather than on the costs of development. So if you have a potentially profitable project, you could cover most of your development costs this way.
Residential development projects come in all shapes and sizes, and there is just
as much variety in the ways you can find to finance them. The most essential
thing is that you have thought through and costed your project thoroughly before
you start. If you have misjudged the market or the viability of your project,
then whatever residential
development finance method you choose, you will find yourself in trouble!
E Berry May 2008
Please note that the FSA do not regulate commercial loans or commercial mortgages
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