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Mortgage & Finance



There are a number of different finance options available to investors and developers. These range from short term finance to long term funding. They are classified into the following:

 


Bridging loans

 

Bridging loans are short-term funding option. They are used to 'bridge' a gap between a debt coming due and as we're talking primarily about property transactions here, the main line of credit is becoming available or they can simply act as a short-term loan in pressing circumstances.

 

Generally speaking bridging loans are aimed at landlords and developers who require quick funding to complete a property purchase such as via an auction where completion needs to take place within twenty eight (28) days. Funds are secured on the property itself and can usually be raised within a couple of days.

 

Lenders typically require a deposit of around 40-50% of the purchase price subject to terms and conditions and satisfactory valuation.

 

Due to the short term nature of the finance, bridging loan rates can be between 1-2% a month plus administration fees.

 

While a bridging loan may sound tempting, if you're thinking about taking one out, you need to think carefully about your exit strategy. This might, for example, involve getting a mainstream mortgage or a buy-to-let mortgage or selling the property altogether.

 


Development Finance

 

Development loans are short loans that will scale the length of a proposed development. They are used by developers to fund the entire process of the build and are paid back via the proceeds of the sale of the development.

 

A lender will usually lend approximately 40% of the purchase cost and fund 100% of the build allowing a maximum loan of 55% of the GDV of the completed development. The funding for the build would be given in stages of completed work and will be checked by an appointed surveyor. The developer will usually need to fund the first stage of the works before they get reimbursed.

 

Development loans differ from lender to lender but typically they will have a range of charges under the product. These include an arrangement fee, exit fee and a fixed interest rate on the loan itself around 6% above base. Interest is rolled over during the life span of the loan and paid back at the end.

 

Pay back of the loan is through the proceeds of the sale of the development. The finance company will benefit from all of the sale proceeds until the loan and associated costs are paid off.


 

Buy-to-Let mortgages

 

Buy-to-let mortgages are loans for purchasing property that you intend to let out.

 

You will require a deposit of about 15-25% and rates vary from lender to lender. Other fees will include an arrangement fee and valuation fee which are higher than residential mortgage fees.

 

The lending criteria include a loan to value amount and the amount of rent you receive as a proportion of the interest paid. A typical minimum is 125%. Lenders may also impose conditions such as the type of letting agreements you have with your tenants, a maximum number of buy-to-lets and loan to value on new build properties.