Property Finance – buy, build or refinance explained.
With hundreds of commercial and residential property finance solutions available building your knowledge and understanding what’s best for you will be invaluable. On this page, we will guide you through the many options whether you are a seasoned property investment professional, property developer or want to buy a commercial property for your trading business.
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The types of commercial & residential property finance on offer.
Let’s dive into the different types of property finance on offer and as we go define what circumstances they should be used in. Follow the links to take a deeper look into the different types of finance.
Commercial mortgages – owner occupier.
A commercial mortgage intended for your own business premises enabling you to operate from a property you now own. You can apply for the mortgage in your own individual name(s), the trading Companies name or put the property in a new limited company name. Lenders will typically offer up to 75% of the valuation or purchase price and will assess the mortgage affordability on your companies financial accounts and profitability. The mortgage lender will want 1st charge against the commercial property.
Commercial investment mortgage.
A commercial mortgage where the property is rented out to a third-party business. As a commercial landlord, you will be expected to make a profit on the rental income generated. Lenders will typically lend up to 75% of the valuation or purchase price and validated by the anticipated rental income the property will likely produce. A commercial lender will typically want to see that the rental income covers the mortgage repayment by 110% – 145%. The mortgage lender will want 1st charge against the commercial property.
Buy To Let mortgages.
Buy to let mortgages are typically secured against residential property but can include semi-commercial where flats may be above a commercial property. The property will be rented out for the purpose of you make a profit, mortgage regulation means that you are not allowed to rent this property out to a blood relative. Buy to let mortgage lenders will lend up to 85% of the property value or purchase price and cross-referenced against the anticipated rental income. The lender will typically want to the rental income to service the mortgage payment by 100% – 145%, each lender differs.
A bridging loan is a short-term property loan typically no more than 18 months in duration. The loan can be secured against residential or commercial property including land. Loans are typically extended to a maximum of 75% of the purchase price or valuation. As bridging loans are interest only, the lender will want to establish how you intend to repay the loan at the end of the term. Interest can either be serviced monthly or rolled up within the loan facility subject to the lender’s loan to valuation rules.
Property Renovation & Refurbishment Loans.
Another short-term property loan similar to bridging finance, however, it is your intentions to implement significant improvements to the property. This may include planning permission, change of use and extensions. You will typically be spending more than 10% of the property value on these changes. The lender will want to understand, how much you intend to spend on building work and what will be the anticipated end value. The lender will typically want to see a minimum of 25% deposit on day 1 but dependent upon the end value may lend up to 100% of the build costs. After taking into account all finance costs the lender will normally limit their exposure to 75% of the project.
Property development finance is a commercial lending facility designed specifically for experienced property developers to build new houses. Loans are individually tailored to the project and the client’s specific funding requirements. Loan amounts normally start from £500,000 with no upper funding limit and terms are typically extend to a maximum of 36 months. In assessing viability the lender will need to see there is demand for the properties being built and planning permission should have been granted. The lender may consider funding up to 100% of the build costs but will normally limit their exposure to between 65% – 75% of the gross development value, although some funders will go beyond this for the right scheme. Development finance is available on residential and commercial building projects.