Understanding Residential Development Finance

By: Sean Horton

Understanding residential development finance is a must if you want to get the best deal with the lowest interest rates possible. Property development finance is unlike a personal loan or residential mortgage. For one there are no set rates of interest but rather they will be set out dependent upon your circumstances and the project you are proposing.

Good advice and especially honest advice can be hard to find but if you take the option of going to a specialist broker then it is possible. Along with the essential advice which makes understanding what you are getting into and how to get the best possible start and finance, a broker can quickly find you the cheapest loan. The broker will have access to lenders that an individual cannot find and as they are used to dealing with residential development finance matters are able to match the lender with the individual.

The time to find a broker is when you have got full planning permission for your project. Looking for finance before this stage is just a waste of time as the majority of lenders will not consider financing your project without the necessary documentation being in place. Once you have this in place then approach a broker and allow them to help when it comes to putting your proposal together. A brokers validation can go a long way to getting your quest for finance off to the quickest and smoothest start. A well planned proposal taken to the lender by a broker will ensure the lenders full and prompt attention.

While the actual rate of interest will depend on your personal circumstances and the projects proposal, as a very rough guide the majority of lenders offer the Bank of England base rate plus 1.5% to 2.5% over. Circumstances that affect this are the size of the project, what you are planning to do with the loan and how much experience you have when it comes to property development.

It is very unlikely that you will be offered 100% residential development finance; usually lenders will give between 70% and 75% of the value. The remainder you will be expected to finance yourself and you will usually need to show proof you can do so before the lender will loan you the bulk of the money. The exact amount will depend on how much experience you have in the development field, those who can back their project with a proven track record will stand the best chance of being awarded 100%. Again if you are looking for the total amount then a broker is your best option for securing it.

As there is usually hundreds of thousands of pounds at stake for residential development finance, the mortgage that is offered will be by way of interest only repayments. The individual takes out the loan, interest is added on to the amount borrowed, but you only pay back the interest part during the period of the loan. Of course when the loan comes to an end you will still be left owing the capitol you originally borrowed. As this will be a substantial amount and you are expected to pay it back in full, the lender will want to see proof that you will have the funds in place. While a broker will find you the best and cheapest deal based on the information you give, it is down to the individual to make sure they read and understand the terms and conditions that come with the loan. The terms will contain important information regarding all aspects of the loan, including the repayment period, the rate of interest and how much in total you will agree to pay.

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