The UK is a densely populated island – which means that UK property will always be in short supply and, therefore, always in demand.
This, in turn, means that property – whether land or buildings – can be an excellent investment, even in the current climate. But of course, there is a downside. If you are ready to buy property for a project or as part of an investment portfolio, you will be faced with substantial costs.
The finance you need to buy property
Very few self-builders or investors have the necessary cash to buy their plot as well as finance a build.
Buying a conventional home is easy enough. Mortgages have been giving people the key to the door for generations by spreading the cost over 25 years or more. But a conventional residential mortgage is of no use to self-builders. It is secured on the value of the property itself, and if that property is an unimproved plot or set for demolition, there is no property to lend on. The lender has no security that they call in if the borrower fails to make repayments and, therefore, they cannot make the decision to lend.
However, there is a growing understanding that self build represents both a safe and profitable area for lending. As a result, there are now plenty of alternative funding plans designed for self-builders. The only problem may be finding out which of them best suits your business needs.
Funding specialist Rangewell suggests some of the main solutions.
Mortgages specifically designed for self-build projects are also sometimes known as Building Mortgages.
They differ from conventional mortgages in providing staged lending. So, once agreed, a section of the loan will be released to buy the plot, and subsequent drawdowns will be permitted as soon as each stage in the build is signed off by a surveyor.
The proportions available at each stage will be agreed when the loan is set up.
So there will be cash available when footings are completed, another tranche of funds when the shell is watertight and so on. This will reduce the risk to the lender and cut the cost of the mortgage – you will not need to pay interest on money sitting in your bank waiting to be used.
Lenders may also be sympathetic to builds that meet specific energy ratings, help promote sustainable living or use non-standard construction types.
If you have already bought the land, you may find that a Development Loan is more appropriate to your needs. Development projects can range from basic refurbishment of an existing structure to ground-up builds. Development Finance can offer lending tailored to your plans, designed for the short- to medium-term, which can be replaced by a conventional mortgage product once the work has been completed. Lenders usually look to advance up to 70% of the gross development value, and terms can be up to 24 months.
Bridging and Auction Loans
Bridging Finance is a short-term funding solution which provides a quick way to finance a purchase, allowing you to secure a property deal before you are ready to arrange long-term funding with a mortgage or other similar arrangement.
Funds can be provided in a matter of days and, although costs may appear high, the fact that loans are used only for the short-term can make them much more affordable.
Auction Finance can be thought of as a special kind of Bridging Loan. Buying at auction can help you bag a bargain, but it does make it essential to have access to funds – you may need to pay in full within 14 days or risk losing the property and your deposit.
With Auction Finance, you can arrange a conditional approval from a lender before the auction itself, so you can be certain exactly how much you can afford to bid on the property you want.
Finding the right mortgage provider
Commercial and other non-standard mortgages are complex products and, unlike the traditional residential mortgage, most are arranged on an individual basis. A lender will need to assess all aspects of your application carefully and measure it against their own established lending criteria.
There are lots of lenders in the market and some are more suitable than others for particular projects. Costs can also vary widely, with both rates, and arrangement and other fees, making some loans very much more competitive than others. There are lots of finance lenders in the market and some are more suitable than others for particular projects. Costs can also vary widely, with both rates, and arrangement and other fees, making some loans very much more competitive than others, therefore it helps to have some expert guidance through the financial maze of mortgage deals for the self builder and developer.