Understanding Your Options for Property Development Loans
You own a piece of property you want to further develop. Perhaps you are a commercial owner looking to add new structures or expand what already exists on the property. Maybe you're a residential owner looking to put an addition on your home. While property development differs among commercial and residential projects, financing is surprisingly similar. The property development loans sought by commercial and residential owners are so similar that it can be hard to tell the difference if you are not paying attention.
There are multiple options for property development loans in the UK. Each of those options is discussed below. Bear in mind that what is discussed here is rather general. Lenders apply actual loan terms and conditions on a case-by-case basis.
The financing most of us think about for property development is the traditional mortgage. Mortgages are available for both commercial and residential property owners looking to purchase a new piece of land for further development. Second mortgages are also possible. They might be used to improve an existing piece of land via new structures, additions, remodelling, etc.
The biggest difference between commercial and residential mortgages is the property purchased. Banks issue commercial mortgages that can only be used to purchase commercial properties with a high enough value to back up the amount being borrowed.
A bridging loan is traditionally used as a short-term instrument for meeting immediate financing needs, with the expectation that future income will pay off what has been borrowed in a timely fashion. A typical residential scenario would see a homeowner getting a bridging loan in order to purchase a new house while he is waiting for his current house to sell. As soon as that sale goes through, the bridging loan is paid off.
It turns out that bridging loans can also be used for property development purposes. As long as there is a promise of sufficient income in the future, bridging loans are great tools for this purpose. They allow for immediate needs to be met without a long-term commitment to financing.
Another great option for property development loans is the tried-and-trusted secured loan taken against existing property. Homeowners across the UK are very familiar with this form of financing. They have been using it for decades to finance renovations. Commercial property owners can access secured loans too, with slight modifications adapted to commercial property.
The secured loan is far and away the safest way for residential owners to develop their properties. Secured loans can be taken out against the equity in the property, in amounts that can be tens of thousands of pounds. Borrowers only need adequate income and enough equity to support the amount borrowed.
This last option applies more to commercial property owners and investors than residential owners. Certainly, the residential owner looking to buy a second home could do so with a buy-to-let mortgage. But unless the property is an investment, a straight mortgage or remortgage product would be a better option.
As for landlords and commercial property developers, buy-to-let mortgages are custom-made products uniquely designed to meet the needs of the rental property market. Many a property investor has built a very solid portfolio using attractive buy-to-let mortgages from lenders willing to offer competitive deals.
Now you know the options for property development loans. Whether you are a commercial developer or a residential homeowner looking to expand your current property, there are ways to finance your plans. As always, we encourage consumers to shop around for the best possible deal.
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