Can I Get a Bridging Loan Without Security?
No, you cannot get an unsecured bridging loan. This type of finance is always provided on a secured basis, meaning you will need to have the appropriate asset to secure the loan.
The asset required can vary depending on the lender, your project, and the details of your application, which we’ll go into more detail about later on in this guide.
What Unsecured Bridging Loan Alternatives Are Available?
You can take out an unsecured loan, which does not require a valuable asset to be secured. If you’re unable to take out a secured loan due to a lack of property/asset, this type of finance may be a better option to consider.
You may be able to take out an unsecured loan over a short period of time. These types of loans can be arranged quickly, however, can have high interest rates.
With an unsecured loan, lenders may also rely on other details of your application to feel secure in who they’re lending to, such as the applicant’s credit score.
There’s a wide range of different loans available on the market that won’t require a valuable asset as security, catering to a range of different circumstances, borrowing amounts and periods. It’s important to understand exactly what you’re looking for in a loan, and what details you’d need accommodating for (e.g., an adverse credit history), to help you filter your search for the best loan without security.
Secured vs Unsecured Lending
Both types of loans have their own pros and cons, and the best fit for borrowers will be dependent upon their unique circumstances and requirements.
With a secured loan, borrowers may be able to borrow significantly larger amounts in comparison to personal, unsecured loans. Borrowing amounts for unsecured loans typically go up to around £25,000, whereas with Octagon Capital, the minimum amount you can apply for with a bridging loan is £50,000.
An unsecured loan will also often require applicants to hold a good credit score, helping to provide reassurance that they can keep up with repayments. It’s for this reason that secured loans can be seen as more accessible to those with adverse credit histories (provided you have a valuable asset to secure the loan with), available for those that don’t hold a perfect credit history with the property, reassuring the lender that the loan will be paid off.
However, by securing valuable assets like your home onto a loan, you could end up losing it if you can’t pay back the loan. This can be a big risk to take, so it’s important to only take out such a loan when you’re confident that you’ll be able to keep up with repayments.
Should I Consider a Secured Bridging Loan?
If you’ve got a valuable asset to secure on the loan and are confident that you’ll be able to pay it back in time, a secured bridging loan is worth considering.
A bridging loan can be used for a variety of different purposes, including the following:
- To help you buy a new house
- To help fund a property development project
- To help raise finance
When in between the sale of your current house and the purchase of a new one, bridging finance can help “bridge” the gap between the two, lending you the funds to purchase the new property before the existing one has been sold. This can be great for those who are at risk of losing their dream home waiting around for their current property sale to go through.
Bridging loans can also be used to help fund property development projects. If a property developer wants to refurbish a property or block of flats to sell them for a higher price, they can help fund this via a bridging loan.
You can also use a bridging loan to raise finance for investment opportunities, for example, putting money into another property or a business. For those with an existing bridging loan or a mortgage (a first charge) with any equity left over, you can use this to take out another loan (a second charge), for such opportunities.
Am I Eligible for a Secured Bridging Loan on an Unmortgageable Property?
Yes, you can still be eligible for a bridging loan even if you’ve been refused by a mortgage lender.
The term “unmortgageable” is used for properties that mortgage lenders refuse to touch. This can be due to the lack of a kitchen, bathroom or for various other reasons.
Even if a property is unmortgageable, you may still be eligible for a bridging loan, and even use the funds from this loan to make the property habitable, and therefore able to later sell at a profit.
If you’re unsure about whether a bridging loan is right for you, get in touch with Octagon Capital to discuss your options.
Do I Need To Be Living in the Home To Get a Bridging Loan?
No, you do not need to be living in the property you’re using the bridging loan on in order to get one. Bridging loans are a secured form of lending, meaning the lenders require a valuable asset/property to secure the loan. The security typically used for this is the property you’re wanting to purchase/use the loan on.
Your borrowing facility will be based on the potential value of the property, as well as other details of your application (e.g., credit checking and affordability). The borrowing facility is also based off of whether the lender would be able to recover the debts if having to repossess the property, however, repossession of the property is usually only used as a last resort when the borrower defaults on their bridging loan.
Can I Take Out a Bridging Loan Without Security?
You cannot take out a bridging loan without security. Bridging loans are a type of secured lending, which requires a valuable asset as collateral in the event that the borrower cannot repay their loan.
While you can’t take out a bridging loan without security, there are a number of other loan options available where you don’t need to secure something to be approved for the loan.
An unsecured loan, as the name suggests, can be taken out without security, the lenders looking instead at other details of the prospective borrower’s application, including their credit history.
With an unsecured loan, you’ll also find the maximum amount you can borrow is significantly smaller than with a bridging loan – unsecured loans commonly offering up to £25,000, whereas bridging loans with Octagon Capital start at £50,000.
When looking to borrow money, it’s important to understand the lenders requirements as well as your own borrowing needs, and to explore loans you’re eligible for that can also accommodate to your circumstances.
Will I Need a Survey?
Yes, a bridging loan will be subject to a survey, helping the lender to ensure that the loan is safe to proceed with and isn’t too high of a risk.
As part of the survey process, a qualified surveyor will be sent to the property that is to be secured on the bridging loan. This surveyor will inspect the property for its value and provide a valuation once the inspection is complete.
Homeowners can often overvalue the property, which is why it’s important to get a valuation from someone qualified in assessing the true value of the property.
What’s the Eligibility Criteria?
The eligibility criteria for bridging loans through Octagon Capital is as follows:
- Must be over 18
- Must have an exit strategy in place
- Property is subject to a valuation
- Must be a minimum borrowing amount of £50,000
- Bad credit considered
- Available in U.K., Scotland, and Wales
- Commercial, residential, mixed properties and HMOs considered
Bridging loan lenders are interested in how much value your property could potentially have, as well as your plans for it. Having a clear and concise exit strategy and plan of action will help you in getting your application approved.
Can I Take Out a Second Charge Bridging Loan?
Yes, you can take out a second charge bridging loan, however the lenders of second charge loans will typically need to get permission from the first charge lender for the loan to go ahead.
Bridging loan lenders will always add a “charge” to the property that’s being used as security, which establishes a priority of debts if the borrower becomes unable to repay their loan.
If it comes to the property being repossessed, the first charge lender would be paid first, then following this would be the second charge lender.
What Happens if I Can’t Repay My Bridging Loan?
If you can’t repay your bridging loan you should contact your provider right away and explain your situation. Often, your lender will work with you to try and come up with a manageable solution. It’s only usually as a last resort that your property will be repossessed.
What Are The Jobs Available at a Bridging Loans Provider?
The bridging loans industry is very fast growing, after all, the sector was worth £1 billion in 2011 and ten years later, it is estimated to be worth over £8 billion. With this comes many job opportunities and today, people may find more scope for working with a bridging loans provider or specialist lender, rather than working with a traditional bank or mortgage company. Below, Octagon Capital highlights some of the jobs and responsibilities you might find working with a bridging company.
- Customer services advisor
- Business development manager (BDM)
- Underwriter
- Marketing team
- Legals
- Mortgage administrator
- Finance analysts and controllers
- Compliance
- HR
- Directors
Customer services advisor
A bridging company will always have a team of people who oversee the customer service operations. This may include just answering standard queries from customers, answering the phones, offering initial quotes, following up enquiries and helping put key documents together.
Prior experience in the financial sector may be useful here, but a lot of the skills can be learned on the job. You will need people with good communication skills and confidence answering phone calls and dealing with queries or complaints. If you work in a regulated bridging environment, you will need to be more strict with following procedures and scripts, in line with regulation.
Whilst some bridging companies may have just one or a few customer service agents, you may find that it overlaps with other skills in administration or marketing. In some cases, you could always outsource this to specialist customer service centres such as Tieta or similar partners.
Business development manager (BDM)
A business development manager or BDM as it is commonly known is a sales role, with the responsibility to find new opportunities and bring in new business. A BDM would be good at speaking to new and existing partners, maintaining strong relationships with brokers that send regular deals and speaking to people at exhibitions and trade shows across the country.
Depending on the size of the firm, you may find that there are BDMs for specific regions, so that they can capture more of that specific market or become more well-known in that area. If they are on the road a lot and going from place to place, it might help if it is in the region of the South-West, or Midlands or a specific area.
BDMs will usually have a starting salary but may also work on commission and the successful completions of some deals.
Underwriter
The underwriters have a very important role within the organisation to assess the risk and rates of any customers and ultimately decide who is approved and who is not.
The underwriters will typically have a background in business, finance, law or economics and they will have very good analytical skills to assess risk and determine what rates are charged and what deals are approved - in order to make a profit.
Underwriters make key decisions and get the final say on who is accepted (along with the Directors).
The salaries for underwriters will typically be a lot higher, and this is something that you can learn by working in the organisation or you can study for this too. However, a lot of underwriters previously work in finance or law and have transferrable skills to take on this position.
Marketing team
The marketing team can be key for a bridging lender in order to convey a positive message and brand image. In a busy industry, a good marketing team can help the company stand out and generate good quality business.
A marketing department can be just one or multiple people and roles can include:
- Branding
- Brochures
- Exhibitions and displays
- Email and direct mail marketing
- Website design and optimisation
- Lead generation from online brokers
- Affiliates, digital and online search
- PR and press from local sources
- Awards applications and submissions
Legals
The legal department will play a crucial role to ensure the completion of any deals, making sure all regulatory and legal contracts are viable, taking into consideration the complexities of purchasing properties or land. The legal team will be responsible to liaising with the solicitors of the clients, passing over funds and checking all aspects of the property and deal so they can run smoothly.
You will ideally need to have qualified solicitor and lawyers to work in the legal department of a bridging loans company - with other roles such as property surveyors likely to be outsourced to a partner.
Mortgage administrator
The administration team will be responsible for gathering and collecting documentation from clients and partners, staying on top of all regulatory requirements and helping to process bridging deals as smoothly as possible.
Since every company will be different, no prior experience may be required and much of this could be learnt on the job, whilst any background working in admin or financial services would be welcomed.
Finance analysts and controllers
The financial analysts and controllers will be responsible for holding and distributing funds between lenders, investors, solicitors and customers. A background in banking and finance would be useful for this, although some roles can be acquired on the job. Other roles may overlap with underwriting or even paying invoices for partners and staff members.
Compliance
The compliance team may overlap with the legal department and will ensure that any activity is compliant and according to the regulation. To be compliant means that you will require written procedures for everything you do, including offering quotations, customer services, contracts, collections and more. A compliance team will be required to do regular training and also pass this on and teach this to other staff members in the organisation.
HR
For larger bridging firms, there may be someone or multiple people involved in HR (human resources). Their roles will include hiring and firing staff, finding new candidates, deploying employee benefit schemes, arranging team socials, dealing with any internal conflict or mediation and also salary reviews.
Directors
Whether it is the main director or commercial director, these are the bosses who have an overview of the entire organisation and ultimately decide what direction it takes and how it grows.
The role of directors is important for securing larger bridging clients and also networking at the highest level. The responsibility of investment and where they generate their funding from will be a key role of a director.
Ultimately, directors will make the final decision on loan approvals, hiring of staff and the overall vision of the company.
How Do 95% Mortgages Work?
The major banks have launched their government-backed 95% mortgages. As such, people across the UK can now purchase a home with only 5% deposits.
The Mortgage Guarantee scheme was launched last week, intended to return mortgage opportunities for buyers with a 5% deposit.
The government has backed the scheme, acting as an insurance policy to lenders offering 95% loans. This protects them against the uncertainty of house prices declining. As a result, mortgage lenders have the confidence to lend to buyers with just a 5% deposit.
Where Can I Find A 95% Mortgage?
The major banks have already begun offering their new 95% loan-to-value product, including Lloyds, NatWest, Barclays, Santander and HSBC.
5% deposit mortgages are back
The government-backed mortgage scheme has renewed confidence in lenders across the country. As a result, a number of lenders who are not using the guarantee scheme have also launched new mortgage products for buyers with a 5% deposit.
Although they are not taking part in the government scheme, they return to offering mortgages for those with a 5% deposit like they did pre-pandemic.
Accord Mortgages, Bank of Ireland, Skipton Building Society, Coventry Building Society, Aldermore Bank, and Buckinghamshire Building Society have already returned to 95% loans. Additionally, Leeds Building Society, Metro Bank, Atom Bank and The Cambridge Building Society have uncovered products.
Who benefits from 95% mortgages?
The new mortgage scheme could help many buyers who haven't been able to purchase a property with a 5% deposit. The new system widens the options for buyers who may have had only the Help to Buy equity loan scheme as an option, available only for new-build properties. This could also be a favourable opportunity for buyers who would put down a 10% deposit but can now choose to keep more money saved for any refurbishments the property needs or other costs.
Restricted Criteria For Borrowers
Lenders offering new 5% deposit mortgage products have approached with caution, adding restricted criteria for borrowers. Some lenders are also currently only providing 95% mortgages via intermediaries.
The criteria include reduced maximum borrowing and tighter credit score requirements. The interest rates are also higher than the current 10% deposit mortgages.
Other limitations may include:
- First-time buyers only
- Lending only on houses, not flats or new builds
- Capping at 4.49 times your income
- Five-year fixed rates only
Will this make homeownership affordable?
If you are a single buyer, the 5% deposit scheme may not be enough to help you purchase your first property. Analysis shows that homeownership remains unaffordable for many despite the 95% mortgage products.
Analysis: Single buyers in their thirties will still struggle to get on the property ladder under the new scheme.
Property analysis found that single people in their thirties, earning the average UK salary, will still be unable to buy a home in around half of all local authorities in England and Wales.
For example, a single woman aged 30 to 39 earns the average UK salary of £30,258. She would not afford a median-priced home from the cheapest band in more than half of local authority areas, even with a 95% mortgage. A single man in this demographic earns an average of £34,567 and would not afford a mortgage in 48% of local authorities in the UK.
Where Are The Best Areas For Holiday Lets In The UK?
- The Staycation boom boosts the holiday rental market.
- The UK's national parks offer the most popular holiday let locations.
- What are the best locations to invest in UK holiday lets?
The Staycation Boom
The rise in staycations as a result of the coronavirus has boosted the short-term rental market. The areas of the country which can boast beautiful scenery and outdoor activities will attract the most interest.
For these staycations, travellers are looking for nature-filled locations with properties to accommodate the whole family. The pet owners around the UK will also be looking to have their dogs come along on their holidays. As a result, holiday rentals become a far more practical option than hotels.
Where are the most popular areas for staycations?
The UK has 15 national parks across the country, which will be exceptionally popular in holiday times.
‘In the UK there are 15 members in the National Park family, which are protected areas because of their beautiful countryside, wildlife, and cultural heritage. People live and work in the National Parks and the farms, villages, and towns are protected along with the landscape and wildlife.’ – National Parks UK
- In England, there are 10 National Parks: The Broads, Dartmoor, Exmoor, the Lake District, the New Forest, Northumberland, the North York Moors, the Peak District, the South Downs, the Yorkshire Dales.
- Scotland has 2 National Parks: Cairngorms and Loch Lomond, the Trossachs.
- In Wales, there are 3 National Parks: the Brecon Beacons, Pembrokeshire Coast, Snowdonia.
In all of these areas, demand will likely exceed the supply for holiday rentals. As one of the UK's largest national parks, the Lake District will be an attractive option for domestic holidays and the nearby Yorkshire Dales.
Why are National Parks the best areas for holiday rentals?
For staycation holidays, travellers are looking for a property to enjoy a range of outdoor activities in the area. Hiking, cycling, rock climbing, and kayaking are among the adventures Brits are looking for. The UK's nationals parks have some of the best trails, cycle paths, and lakes.
National Parks in the UK welcome holiday-makers in the thousands annually and will only become more popular in the years to come.
Investing in UK holiday lets
Short-stay rentals have the potential to be more rewarding than long-term rentals, especially in the right location.
With so many incredible nature-filled locations in the UK, there is a wealth of opportunity for investment. As demand is sure to exceed supply during vacation times, a holiday rental property is likely to be successful on the short-term rental market.
Last-minute mini-breaks have become especially attractive since COVID restrictions came into place. Once the restrictions are eased, the rush to find a holiday home will see properties snapped up within weeks stretching throughout the summer holidays. Now is also a good time to invest in short-term holiday lets because they are COVID friendly. While some may remain tentative about staying in shared accommodation or hotels, rentals don't require human interaction, making it more appealing for coronavirus concerns.
Is It Time To Focus On New-Build Properties?
- What are the advantages of new-build properties?
- Why is now the right time to focus on new-build properties?
- What are the effects of the Green Homes Grant?
There is growing interest in new-build properties in the wake of the pandemic as Britain tries to support both the economy and the environment. Housing plays a substantial role in the UK's carbon footprint. The market will be key in reaching the government's net-zero goal on carbon emissions by 2050. Alongside this discussion, the Green Homes Grant scheme has raised awareness of the importance of eco-friendly housing improvements.
What Are The Advantages of New-Build Properties?
Cheaper Energy Bills
New-build homes usually have the top Energy Performance Certificate ratings of A or B. An EPC is a four-page document that evaluates a property's energy performance on a scale from A to G (A being the most efficient). The EPC of a property is vital in indicating how much heating and power will cost. New-builds, with the highest rating, have considerably cheaper annual energy bills and often require less upkeep.
Environmentally Friendly
Housing plays a substantial role in the UK's carbon footprint. Running a new-build property with efficient energy performance is much more environmentally friendly. More efficient housing is key to achieving the goal of net-zero by 2050.
Boost the Market
Eco-friendly housing is sure to promote the UK's green credentials. This feature, in turn, will strengthen both the housing market and the private rented sector.
Why is now the right time to focus on new-build properties?
In the wake of the coronavirus, the main concern for many is the UK's economic recovery. Placing focus on developing eco-friendly new properties could be a critical element in the UK's economic recovery post-COVID 19.
As well as this, there is little time to wait on acting against climate change. If becoming more environmentally sustainable is top of your agenda, housing is a great place to start.
Discussing the environmental effects of our housing, property expert Evan Maindonald highlights this responsibility.
"Climate change will be far more costly to deal with in the future if it is neglected now... and so we must take the responsibility of being as environmentally sustainable as possible very seriously.
What are the effects of the Green Homes Grant?
The Green Homes Grant was put in place in 2020 to make energy efficiency improvements more accessible. The results of the Green Homes Grant are already proving to be positive, with the public's awareness of environmental issues growing. However, the grant is due to end on 31st March 2021. As the plan reaches its end, will focus move away from energy-efficient improvements and towards EPC-friendly new-builds?
The effects of the Green Homes Grant are sure to continue. Following the government scheme, almost 84% of British homeowners plan to address energy efficiency changes in their property in 2021, according to a study by City Plumbing. Moreover, nearly 53% of households plan to invest in green measures specifically to reduce energy bills. The drive to improve the energy efficiency of our homes, alongside the surge in new-build interest is sure to have an impact. Yet, we will have to wait to find out the long-lasting effects environmentally-friendly housing will have in the UK's fight against climate change.
To find out more about eco-friendly property, take a look at our article: Green property in 2021
Is 2021 the right year to invest in short-term holiday lets?
- Demand for holiday rentals has been on the rise.
- Is 2021 a good year to invest in short-term holiday lets?
- Why are they becoming more popular among holidaymakers?
There is growing interest in short-term holiday lets in the UK. Following the first lockdown, Brits flocked to short-term rentals around the country. Once current lockdown restrictions are eased, UK staycations will likely undergo another boom. After spending so much time stuck at home, many will be longing to get away as soon as possible.
International travel is still forecast to remain under limitation for quite some time. As a result, the local travel market will have a comeback. Additionally, the coronavirus pandemic's financial implications will mean that more people are likely to continue to take local holidays to save money even once travel restrictions have been eased.
Is now the time to invest in holiday lets?
Experts predict the short-term letting sector to see further growth in the coming years. Recently, the rise of staycations has rejuvenated the business. It is now becoming more popular for buy-to-let landlords to branch out into holiday rentals.
Brexit
An increasing number of landlords are adding short-term let properties to their portfolios to diversify their investments. Brexit is anticipated to strengthen this market further. The rate of the pound sterling has remained in a slump since the 2016 EU referendum. The unfortunate exchange rates make staycations even more attractive to British holiday-makers. Additionally, it has also become cheaper for foreign tourists to visit the UK, causing further tourism growth.
Profits
There is the potential for landlords to earn significantly more from short-term holiday rentals than long-term rental properties. It is not uncommon for holiday rentals to charge more money for a one-week stay than a buy-to-let would for a month. There are also tax benefits to be considered for furnished holiday lets.
Why are short-term holiday lets becoming more popular among holidaymakers?
Privacy
Privacy has become more of a priority among holiday-makers. It is more popular than ever for holiday-goers to find private accommodation across city, rural, and coastal destinations around the country.
Booking Apps
Many successful booking apps have made it quick and easy for travellers to find accommodation. The apps also make it simpler for rental owners to list their accommodation across a far-reaching platform. One of the most popular apps is Airbnb, which has considerably affected the short-term rental boom.
Environmental Awareness
As more people become aware of their environmental impact, many individuals choose to stay closer to home rather than fly abroad. Taking environmental responsibility for climate change and reducing personal carbon footprint will lead people to take more staycations, which will give an extra boost to the UK's holiday lettings market.
Coronavirus
In 2020, last-minute mini-breaks became especially attractive. Following the first lockdown last summer, Brits jumped at the opportunity to book a staycation holiday around the UK. Once restrictions are eased, the public will likely replicate this.
Short-term holiday lets will also be preferable in 2021 because they are COVID friendly. Most rentals require no human interaction, making it more appealing for coronavirus concerns. Booking, communication, and payment can all been made online or via a host of apps.
New leasehold reform: Will it make homeownership fairer?
- New leasehold reform will save millions of leaseholders tens of thousands of pounds
- What does the reform change?
- Will it make homeownership fairer?
What is the new leasehold reform?
New legislation that has been brought forward, will give leaseholders the right to extend their lease for 990 years at zero ground rent. The leasehold reform will save millions of leaseholders up to tens of thousands of pounds. The government described these measures as part of English property law's biggest reforms in 40 years.
Housing Secretary Robert Jenrick says: "Across the country, people are struggling to realise the dream of owning their own home but find the reality of being a leaseholder far too bureaucratic, burdensome and expensive.
"We want to reinforce the security that homeownership brings by changing forever the way we own homes and end some of the worst practices faced by homeowners."
What does the reform change?
The reform will give leaseholders the right to extend their lease by a maximum span of 990 years with zero ground rent. Previously, leaseholders of houses have only been able to extend their lease for 50 years at a time and had to pay ground rent.
Leaseholders have also been met with expensive charges to extend the lease. Some of these extra costs have now been abolished with the reform, such as the "marriage value". This required leaseholders to share information with the freeholder about potential profits from extending a lease.
A cap on ground rent, the cost paid when a leaseholder extends the lease or buys the freehold, will also be introduced. An online calculator will now make it easier for leaseholders to know how much it will cost to do either. This hopes to make the costs associated with a lease more transparent.
Will it make homeownership fairer?
While the proposed leasehold reform has much to support, many in the industry feel they need some more detailed information. There are concerns that the reform has created further uncertainty for leaseholders. Moreover, there is apprehension that the proposed actions could take years to become law.
However, for many in the property industry, there is a shared hope that the reform will make homeownership fairer and put an end to the ground rent scandal.
What is the ground rent scandal?
The ground rent scandal is one of the reasons why leasehold reform is so important. Objections to the unfair expenses on leasehold flats and homes sold with unclear clauses began some years ago. Some clauses involved freeholders increasing ground rent excessively. In some cases, leaseholders saw their rent double every ten years. The increased costs left some homeowners struggling to sell their property. As a result, properties with short-leases or high ground rents are often left vacant.
Mark Hayward, the chief policy advisor at Propertymark, discusses the organisation's research into the ground rent scandal:
"Our research' Leasehold: A Life Sentence' in 2018 found that 46 percent of leasehold house owners were unaware of the escalating ground rent when they purchased their property. Over one million households in the UK are sold through a leasehold, and this new legislation will go a long way to help thousands of homeowners caught in a leasehold trap."
Conclusion
Homeowners will see direct benefits from the government's leasehold reform. 4.5 million homeowners will save up to thousands to tens of thousands of pounds. Furthermore, the reform will allow leaseholders to buy a freehold for a lower price. Overall, homeownership costs will become cheaper, and property sales will be more straightforward.
Let's not forget about the benefits for properties with shorter leases. Properties with short-leases or high ground rents are sitting empty around the country as owners struggle to sell. Homebuyers will now become more open to purchasing properties with shorter leases leading to fewer stranded, vacant properties.
All in all, the leasehold reform is provides willingly received changes to many in the property industry. The only desires that remain are for details to be made explicitly clear and actions to be fulfilled promptly.
How Does Development Finance Work?
Development finance is a flexible way to fund property development projects, allowing borrowers access to capital faster than traditional banks. Typically, development finance does not adhere to such strict lending criteria meaning that finances can be obtained more easily. This type of finance typically allows the borrower access to greater sums.
What Is Development Finance?
Development loans are a type of finance used to fund property ventures. They can be used for a variety of different project, including renovations, conversions, property development and more.
Development finance can only really be used for larger property ventures, and therefore isn't appropriate for single home refurbishments or other, similar small-scale projects.
Development finance is a short-term loan, usually available for 6-24 months, the precise duration agreed by the lender subject to the property development project in question. The longer the loan term is, the more interest is added, typically being charged monthly by the lender. There's a range of different ways to repay for a development loan, including interest only, rolled up and development exit finance.
Funding Development Finance: A Two Part Process
Typically development funding works in two parts.
- Land Costs
The first is securing the development site and providing the funds to cover this. This may be a plot of land where a new build will be built or an existing property that developers are wanting to refurbish. Typically, lenders will contribute towards a percentage of the land costs. - Build Costs
The second stage of the funding is covering all of the costs of the building works for the project. Depending on the agreement made, this typically happens monthly to cover ongoing costs rather than one lump sum. The majority of lenders will offer a maximum of 75% of the total build costs.
How Much Funding Can Be Secured?
If you come across an opportunity to build, renovate or develop a property, Octagon Capital can give you access to capital in order to help fulfil your project. The amount you can borrow is based on the Gross Development Value (GDV), the estimated value of the project upon completion. With Octagon Capital, you can apply to borrow up to £25 million towards your development finance project. This figure is based on around 100% of build costs and 50% to 70% of the land costs.
The amount of funding available varies depending on multiple factors including the type of project, how experienced the developer is, and the forecasted costs of the build. There is an Independent Monitoring Surveyor (IMS) who works on behalf of the lender to oversee budget and time-frame. The costs of the IMS will also be incurred by the borrower.
3 key factors that will be considered before any development loan:
- Current value of the site (pre-development or pre-refurbishment)
- The build costs
- The gross development value after the works
Other factors vary from lender to lender but may include:
- Maximum loan amount
- Length of loan
- Interest rate
- Proportion of borrowed money out of overall costs
Is Development Finance Right for Me?
Development finance is good for substantial property ventures. It can be used to cover a range of different costs associated with the project, including the building costs and land purchase.
While lenders like to see experienced developers applying with an extensive portfolio of past successful projects, first-time developers can also be eligible for this type of finance, provided they meet all of the eligibility criteria set out by the lender. The eligibility criteria for development finance can include:
- You must be based in UK, Scotland or Wales
- Must be a limited company
- You must have information including GDV, construction and site costs
Why Choose Octagon Capital?
Octagon Capital offers a personalised approach. The initial meeting allows you to outline your project with one of our team members. From that we can assess your needs and set about finding the best course of action to see your project plans into fruition.
Contact us at Octagon Capital to explore the best options for development finance
Is Development Finance the Right Option For Me?
If you are looking to do a total large-scale renovation or build from scratch, development finance is a great option to secure the funding that you need. They allow you money in the short-term to finance your projects and you pay back the loan and any additional incurred costs after the properties are sold. Development finance is an ideal solution for those looking for short-term funding (usually between 6-18 months).
What Can I Use Development Finance For?
Development finance can be used to fund many different purposes covering everything from new builds to buying land to major renovation projects.
Residential Property Development
For those looking to renovate, refurbish or buy properties for residential purposes, development finance can be a great choice. This is true whether your project involves single residential builds to larger-scale multi-unit development complexes. With Octagon Capital, you can access funds for construction costs and purchase the property with a flexible repayment plan. Upon completion, you have the flexibility to either sell the flats at a higher price or rent them out.
Commercial Property Development
If you are wanting to finance a commercial property development project, development finance could be the ideal solution. Whether your projective involves offices, shops or even vacant land, development finance could help fund all of the fittings and fixtures of a commercial property. Speak to an advisor today to learn more about our panel of lenders, many of whom are experienced in commercial property development.
Ground Up Development
Development finance is a perfect option for those looking to start from zero. Those looking to take on such a grand project need not be put off by the funding part. Whether you are starting with a completely empty plot of land or looking to totally renovate an existing property, development finance can help you fund the project. Once completed, you can reap the benefit of a fully functioning property, ready to sell on or rent out.
Advantages of Using Development Finance
Even for those lucky enough to be able to self-fund a development project, there are benefits to looking to development finance to cover some or all of the costs. Opting for development finance enables:
- Access to larger funds
- Untouched personal cash flow
- Ability to take on multiple simultaneous projects
- Greater return on investment rate
Am I Eligible For Development Finance?
To be eligible for development finance with Octagon Capital you must meet the following criteria:
- You must be based in UK, Scotland or Wales
- You must have information including GDV, construction and site costs
- All credit histories considered
- Must be a limited company
Development finance can be an important tool in helping a property development project to take off. However, it's important to check that you are suitable for finance before making your application with a lender. Your eligibility will ultimately be down to the details you provide in your application as well as the lender's own requirements.
Can I Get Development Finance as a First Time Developer?
Yes, first-time developers may be eligible for finance with a development finance lender. Just because you're a first-time developer doesn't mean you aren't capable of carrying out a successful property development project. Lenders understand this, and many are willing to take a view on those with little experience with project of this nature. However, it can be beneficial for applicants to have a substantial history in development finance and a great portfolio of past projects to hand.
Inexperienced developers will need to have an experienced team on the project, as well as a solid plan for the development - including an exit strategy, total build cost, Gross development value and more.
What Information Would I Need?
In order to apply for development finance with Octagon Capital you can make a quick enquiry via phone call, email or filling out the contact form, with just a few basic details including:
- Details of the development project
- Property size
- Amount you are looking to borrow
With those few details, an advisor can indicate what possibilities are available, how much you could potentially borrow and at what rates.
Contact us at Octagon Capital so see what is the best option to suit your project needs