Property Development Finance – Is it Like Any Other Finance?
by: SeanH
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If you have never been involved with this type of project before, you might assume that obtaining property development finance is similar to obtaining any other type of mortgage. However, this type of finance actually comes with very specific conditions attached.
• Rates on property development finance are usually higher than those on a standard mortgage. They generally range from bank base rate + 1% to bank base rate + 3%.
• Whether you get the lower or higher rates on this scale depends on various factors:
o The level of experience of the applicant. A newcomer to property development would pay higher rates than an experienced developer.
o The industry sector – you would pay more for a commercial project than for a residential project.
o The nature of the proposal and the degree of risk involved – whether planning permission has been obtained, the likelihood of resale etc.
• A property development finance loan is usually interest-only.
• A short-term property development finance loan can often be as short as a few months to a year, depending on the size of the project.
• To determine how much they will lend, the providers look at both the purchase price and the estimated cost of development. The usual amount is in the region of 70% of the purchase price plus 70% of the estimated development cost. However it can be as low as 50% plus 50% if the risks are regarded as high – for instance if the person applying is a novice at development.
• In certain circumstances the lenders might agree to provide 100% finance. This could be, for example, if the applicant already owns the land and only wants to borrow for development.
• Sometimes if the person applying is an experienced developer with a good track record, they might be able to get hold of 100% of both purchase and development costs.
As you can see, the world of property development finance is very complicated for the newcomer. If you think you might be looking for this type of finance in the near future, the best thing is to talk to a specialist independent broker. The broker will explain all the ins and outs and help you find the right provider for your particular type of project.
Article Source: http://www.ArticleStreet.com/profile/seanh-2204.html
About the Author
Sean Horton is a Director of Enhanced Wealth Limited who offer a specialist service for property development finance
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