If you are considering a property development project, you won’t need telling that property development mortgages are among the major hurdles for anyone starting out.
Up until a few years ago, the major suppliers of property development mortgages were the normal high street banks. This could cause a few difficulties for developers just starting out, as the banks had the same sort of rigid criteria as they applied to their whole range of mortgages.
However, in recent years more and more specialist lenders have sprung up, to provide property development mortgages on more competitive terms. This can make life easier for developers, especially new and less experienced ones.
So why could it be to your advantage to find one of these specialised lenders? There are a number of reasons.
The high street banks provide mortgages across the whole spectrum of property purchase. There is no guarantee that there would be someone on the staff of your local bank who really understood your requirements.
If you go to a high street bank, they are unlikely to offer you more than 65 per cent of your total project cost – often no more than 50 per cent. This is because, obviously, a development project is much more complex than an ordinary house purchase and carries much higher risks. Specialist lenders, because they deal exclusively in development finance, are likely to allow much higher loan-to-cost borrowings. In fact it is not uncommon for a specialist lender to offer as much as 85 per cent. Obviously, you would be required to offer a great deal of detailed information about your project, and perhaps agree to monitoring by the lender. But you have the reassurance of knowing that they have the knowledge to be able to assess your project.
A big advantage is flexibility. A specialist lender is more likely to be able to provide the funding for the loan period that is suitable for you. High street banks often have rigid timescales that don’t allow for any negotiation. With a specialist lender you have a much better chance of having your loan tailored to the scale of your project.
Specialist lenders often have on their staff at least one person who has had experience of property development and can provide advice. This can help you to revise your plans and make them more effective and efficient, which can probably reduce your costs. If the lender identifies problems with your development plans, rather than just turning you down they will sit down with you and work through your project to ensure it is viable. Of course they may turn you down if your idea is simply unworkable, but they are much more likely to offer you positive advice than a non-specialist lender.
So for anyone looking for property development mortgages, the message is clear – you are more likely to find what you need from a specialist lender. If you don’t know where to find one, seek out a broker. Some brokers actually specialise in development finance and will be well placed to advise you how and where to find what you need.
Please note that the FSA do not regulate commercial loans or commercial mortgages