Following the recent financial crisis, banks have become far more reluctant to lend and provide financing for property development and property flipping. This has led to would-be property developers finding it even more difficult to gain independence from their typical 9-5 job.
Banks have reduced the number of buy to sell mortgage products on the market and the ones that remain may take weeks to be underwritten and for the transaction to complete. Buy to sell mortgages from the high street lenders tend to require a large deposit and are restrictive in terms of fees, rates and borrowing purpose.
In addition to this, buy to sell mortgages are only being offered on properties deemed structurally sound and habitable. This means that if there is no kitchen or bathroom or major renovation work is required, then the mortgage is likely to be declined.
Standard mortgages will also not help financing property development as these are offered on properties where the buyer intends to live in the property. They also have high exit fees as they are not designed for short-term lending.
So, even if the key to successful property development and flipping is understood, would-be property developers need to look elsewhere for a financing product suitable for short-term property development.
The first solution is bridging finance, which is specifically designed for short-term lending of up to 24 months. Bridging finance is a specialist product however, so it is essential to use a broker who will be market aware and able to compare bridging products from all of the major UK short-term lenders.
These short-term lenders will not have high street recognisable brand names but they are no less secure or reliable than well-known high street lenders.
Bridging finance can also be made available very quickly and typically within 48 hours from borrower qualification. This makes a bridging loan the product of choice for property developers buying at auction.
Lending can be underwritten based upon collateral, such as the property, and may be considered based upon the properties true value and not the value that it is bought for. This means that much higher loan to value funding is available.
Bridging finance can also be arranged as a second charge. This can help property developers increase their cash flow in order to complete a stalled project or purchase a new property for funding more than one development at a time.
Investor Partnerships and Joint Ventures
An alternative to bridging finance is investor partnerships and joint ventures. These can be a good fit for property developers without any free capital, for those who cannot get a mortgage or novice property developers who need the guidance of an experienced partner.
A win-win scenario sees the property developer gain access to the funds they need while the investor makes a return through a profit share agreement. Glenn Armstrong Property is one such resource where investor partners can be found and these investors have the knowledge to help novice property developers qualify potential properties and better their odds of success.
So, financing property development is still possible following the financial crisis and better advice may now be offered as lending becomes more specialised and made for purpose.