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Ashley Ilsen

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Is It Possible To Buy Land Without Money?

By Blog, Development Finance

In the majority of cases, if you are looking to invest in land or property, you will usually need in order to be able to finance such an investment, but it is possible to purchase with little to no money.

How do you achieve this? Prior to the financial crash in 2006, it was commonplace for mortgage lenders to happily provide 100% mortgages to buyers. These days, finding this kind of mortgage is extremely rare. We take a look at the different alternatives that are available to you, should you be interested in buying land but have little cash upfront to buy it with.

Borrowing against your own property

It could be the case that you do not have much in terms of cash, but do have a considerable amount of equity that is locked in your current property. If this sounds like you, it could provide a way in which you can purchase land, if you decide to extend the mortgage in order to release the equity locked up in it. That would enable you to then use these funds to invest elsewhere.

If you were interested in pursuing this option, there are some questions that you should carefully consider before making any final decisions. For example:

  • Not all mortgage providers will necessarily allow you to borrow additional money against your house so you can invest in property: this is something you will need to verify with your mortgage lender or broker.
  • The residential mortgage will be assessed on your income, so you will need to make sure you have enough earnings to be able to release equity.

Look at a joint-venture property development

Have you considered looking further into joint-venture property developments if you want to purchase land but have a small amount of money? It is worth taking a further look at.

But how does a joint-venture work in practice? The process is relatively straightforward in nature: you find a development project, research it and then look for another person to join the project who is willing to provide the deposit for it, and may also need to provide other forms of security.

This joint venture can work out profitable, as both parties ultimately share profits upon completion.

Providing additional security

Another potential option for you to be able to buy land with little money is to provide additional security to a lender. This is usually in the form of a high-value possession, in most cases this will be in the form of a property but could be a car or another costly item. Lenders in the property sector will offer 100% borrowing to purchase land if the collateral is given, is this presents less risk to the lender.

funding-property-development.

How to Refinance a Property Development Project to Avoid Fees

By Blog, Development Finance

There are a variety of things that can end up not going to plan when it comes to a property development project, even if you have planned the project well and manage things accordingly. For example, common issues that can cause construction site delays can be things such as extremely bad weather (for example, torrential rain) making it difficult for work to continue, an important supplier failing to deliver, or overbooked construction teams.

Unfortunately, these delays can lead to you incurring penalty fees if you have taken out development finance in order to fund the project. However, you  could look at development exit finance to help you avoid potential charges. Wondering how it could help you? We take a closer look.

Should you consider refinancing your development project?

Before going ahead and making the final decision as to whether or not you should refinance your build, you should carefully consider the options available to you.

For example, what are the terms and conditions of your current project, and would you have to pay additional fees for deciding to refinance that could outweigh any advantages when it comes to changing?

What’s more, is there room for contingencies: a general rule of thumb is to consider nine months into the project as the benchmark for potentially considering refinancing as an option (if you have taken out a 12-month development finance loan).

At this stage, it would be expected you were confident you were going to meet the exit deadline promptly, with most work having already been carried out by this point. If you are not confident that this will be the case, this would be when most developers would look at refinancing options available to them. 

Extending the borrowing term

In the majority of cases, property developers who decide to get development finance will have the term of this funding limited to just 12 months. This can make it very difficult timetable wise, should something go wrong with construction, or completing on sales.

This is why it is worth making sure you have arranged your development finance for the longest possible term either by doing it yourself or through an experienced broker. Furthermore, you should also find a provider who will not charge you fees for early repayment, in the event that you complete the project earlier than anticipated.

Reducing the cost of development finance

Exit finance rates can be cheaper than other kinds of development funding, meaning you can potentially save a considerable amount of money on the cost of lending if you are carrying out a construction project. In addition, interest that is accrued on exit finance is retained, which means that you can put all available capital on completing the construction project

Using refinancing to fund your next project

Not only can refinancing your development project reduce penalty fees should your project has delays, but it can also be useful for property developers looking to get their next project started, as refinancing can help fund this.

Many developers who are looking for cost-efficient ways to fund their project use refinancing in order to have site acquisition, design as well as planning all underway whilst currently finishing off a project. This means when the current project is finished, a property developer can immediately get started with the next construction build.

ashley-ilsen

The Government Need To Be Doing More For SME Builders and Developers

By Opinion

Ultimately the government need to be doing more for SME builders and developers who are facing what is already an uphill struggle. We regularly hear complaints from our clients about the rising costs of building new houses; anything from labour to supplies have been on a steady increase of late. When this is twinned with a flat property market all that leads to is a squeeze on margins, making opportunities for developers scarcer.

There needs to be a bigger push from the government to incentivise people to build homes again. We all know we’re a long way away from the targets that we are supposed to meet and this is not going to improve without drastic changes to both the demand and the supply side.

I was a big fan of help-to-buy when it was first introduced however this was only supposed to be a temporary short-term fix, and not long term dependency as it appears to have morphed into. There is a distinct lack of dynamism and forward thinking from our government when it comes to housebuilding and sadly I don’t see this changing anytime soon.

How to Finance Your First Property Development

By Development Finance, Lending, Uncategorized

Getting started on your very first property development project is most likely an exciting but also slightly daunting prospect, especially with so many potential options available in terms of funding. To make the decision process a little easier, we’ve broken down the main ways in which you can finance your foray into the property development sector.

Buy-to-let mortgages

If you intend to buy a single property and renovate it with the intention of then renting it out to a tenant for a number of years, it could be well worth your time investigating if a buy-to-let mortgage would be worth considering.

What makes a buy-to-let mortgage is different from a residential one? In many respects, they are similar: you will have certain eligibility criteria you will need to meet in order to qualify for this kind of mortgage. For example, a certain level of income will usually be necessary as this will determine the amount of capital you can borrow from a lender. Buy-to-let mortgages are also limited to one single property too.

The fact that most buy-to-let mortgages are limited to one property means that it is likely you will need to look for funding elsewhere in addition to the mortgage if you would like to expand your portfolio further than one property, or develop a number of properties at once.

Auction finance

Another viable option to getting finance for your very first property development is auction financing. Property auctions are usually considerably more affordable than if these very same buildings were listed in the traditional way, but the caveat is that they often require a lot of work to be carried out on them before being able to sell them on.

Whilst houses at auction tend to be cheaper, you will need to have all the money available to purchase it outright within a month of the auction ending (and your bid was successful). This can pose a problem for some property developers, who may not necessarily have access to all the finance upfront, but at the same time do not want to miss out completely on the possibility of the perfect property to develop.

Auction financing helps to solve this problem, as it a short-term bridging loan that can be arranged very quickly and helps property developers that cover the cost of the building until funds become available at a later point. It can also be agreed in principle before the auction.

Development finance and bridging loans

One of the most popular funding options for property developers tends to be property development finance and bridging loans. But how do these financing options work? This type of short-term funding can help with not only the purchase of a building but also help with the cost of renovating it too. It can be arranged quickly, and funds can be released to you within a very short period of time (within 4 weeks), meaning that it gives developers a great deal of flexibility when it comes to getting access to capital.

For more information about development finance and how Magnet Capital can help, contact our team directly.

Commercial mortgages

Are you or your company looking to expand primarily into the commercial property sector? Then a commercial mortgage may be your best bet instead. However, it is important that you keep in mind that this kind of funding will be limited to commercial properties only: for example warehouses, offices, and shops. In all other respects, it works very similar to a residential mortgage, which also means that if you are looking to develop residential properties or need additional funding then a commercial mortgage may not necessarily be the best option for you.

getting-most-out-of-land-sale

How To Get The Most Out of a Land Sale

By Blog, Development Finance

Getting the most out of a land sale

With the housing crisis affecting people nationwide, it has had a knock-on effect on agricultural land by inflating its value, and it is thought that it will continue to increase further if the government follows through with its promise to build and provide over 300,000 new properties each year.

When it comes to privately owned agricultural land is estimated to be worth approximately £20,000 per hectare on average in the UK. However, this could rise to as much as £2 million per net developable hectare if planning permission has been gained for housebuilding in certain areas across the country.

Consequently, the potential to capitalise on land profit is encouraging many individuals to look at getting planning permission for land assets to then sell on to house builders. However, there are some important aspects to take into account that can affect a land sale, as well as the process of selling and tax implications too.

Things to consider when selling land

  • Land assemblies: most landowners often pool their assets into what is otherwise known as a ‘land assembly’ to make it more profitable to sell land. This is because individually, small amounts of land will not be as lucrative for property developers, who are generally less interested in small sections of land.
  • The time and cost involved: it is worth remembering that it can take some time to get planning permission alongside selling land as there are many different stages that can be involved. On average, this could take 18 months but can take years: the larger the site, the longer it will take.

The process of selling land

It is typically a three-step process when it comes to getting planning permission and selling land to a property developer. This works as follows in most cases:

  • The Local Plan: prior to getting planning permission, you will need to make sure that your land has formed part of the council in your area’s Local Plan: which means the document that refers to your local area’s housing strategy. It may take some time before this is achieved.
  • The application: as soon as you’ve managed to get the land included in the Local Planning you can get planning permission.  To apply, you will need to draw up a housing development scheme, which the land promoter can do on your behalf. This scheme is then put to public consultation.
  • Sale: if the public consultation goes well land your planning permission has been granted the land agent and land promoter can broker the sale of your land.

Tax implications of a land sale

There will be implications with regard to liability on your sale proceeds as well as inheritance tax applications. The exact tax implications will be depending on the type of land being as well as how you intend to sell it.

Main residence land sale: if it part of your main, long-term residence it can qualify for Principal Private Residence Relief (PPR) this will exempt you from paying capital gains tax (CGT) at 28%.

Land assemblies land sale: the tax implications if selling as part of a land assembly can vary, therefore always seek specialist advice for further details.

Separate land from main residence: this will incur income tax up to 45% in total, or capital gains tax at 20%. The tax you will need to pay will depend on the intention when acquiring the land – for example, whether it was a family asset or a long-term investment.

funding-property-development.

A Guide: What are the alternatives to mortgages?

By Blog, Development Finance, Lending

Are you looking to buy a home and get on the property ladder? Or alternatively, are you a property developer looking to purchase a building in order to renovate and sell on? You might be immediately considering to get a mortgage in order to buy a property, but did you know that there are other options available to you too? We take a look at some of the most popular alternatives to traditional mortgages.

Cash buyers

A cash buyer refers to someone who has the cash available upfront in order to purchase a property without needing to get a mortgage. It is possible that this can be done on an individual basis, or by a firm. Choosing a cash buyer in order to finance your mortgage can have a number of benefits, including helping to make the house sale process quicker, and it is also possible that it can help prevent a chain-forming beyond the purchaser.

Cash buyers are commonly homeowners who have already sold their home or simply have a lot of disposable money available and do not need a mortgage.

If you decide to use a cash buyer instead of getting a mortgage, you will typically be given a cash offer after a formal valuation of the chosen property. If you accept the offer, it is possible to complete the sale then within a timeframe that best suits your needs.

Development finance

Another option available to you is development finance when purchasing property, especially if you are a property developer. This type of finance is primarily aimed at those who intend to renovate, build up or extend a new property from a plot of land.

One of the main reasons why development finance best suits buyers who intend to develop a property is that the loan values are broken down into construction costs and for also purchasing the land too.

All funds are provided to you in stages during the construction project after a valuation from a surveyor. As a result, this type of property finance can help you to budget carefully during the project, maintain positive cash flow and ultimately avoid overspending.

Bridging loans

Bridging loans are aimed at those who are looking to complete properties on a fairly strict deadline. This includes buyers who are intending to complete on an apartment or building within a 2-to-4 week period.

One of the main reasons that bridging loans are so popular as an alternative form of property finance is that the loan can be sorted out far quicker than is standard with a traditional mortgage, which can take months to go through.

Types of buyers that commonly use bridging loans to buy property including homeowners intend to move but have yet to sell their existing property, those looking to raise finance for business purposes or investments, and homebuyers who have bought a property at auction. Your security is at risk so if you do not keep up with repayments, your property is at risk of repossession from the lender.

Help-to-Buy equity loan

Help to Buy equity loans are also a viable alternative to standard mortgages. This government loan is available in England and Wales and helps people to put down a deposit for a house at a quicker rate, and it is low in interest.

alternatives-mortgages

Mortgages are not the only form of funding available to purchase property.

In terms of eligibility criteria, the house you intend to buy will need to be a new build registered with the Help to Buy Scheme. The purchase price can be up to £600,000 in England or £300,000 in Wales, and it can be the only property that you own.

It is also worth keeping in mind that you will need a 5% deposit in the first place, with the Help to Buy loan then lending to you an additional 20% (or 40% in London) and additional funding will be needed through other forms of finance.

This is designed to help first time buyers or those looking for assistance when getting on the property ladder.

Shared Ownership

In the UK, it is also possible for you to buy a home via the shared ownership scheme, and it is also possible to do this with a housing association or council property.

The scheme enables you to buy between 25% and 75% share of a leasehold property, and then you pay off the remainder as rent. To be able to apply for shared ownership, you need to earn less than £80,000 a year, and fall into one of the following categories:

  • You are a first-time buyer
  • You are an existing shared owner
  • You used to own a home, but it is no longer possible for you to purchase one as you can’t afford to.
development-finance

A Guide: What is development finance used for?

By Blog, Development Finance, Lending

What is development finance?

Development finance offers finance used for developing, refurbishing or constructing a property. The end goal can be to rent out the property to tenants or sell it for a higher price once completed. It is a type of specialist finance commonly used in order to develop residential and commercial properties.

The uses for development finance

There are a number of different reasons why someone may opt for development finance such as:

  • To help assist with the funding of a large development project, such as conversion project or a new build
  • Residential redevelopments involving considerable structural work
  • Smaller development works
  • Quick access than applying for a mortgage
  • Avoid traditional property chains
  • More specialist for buying land and developing it

Properties include:

houses, flats, flats, barns, farmhouses, garages, warehouses, offices, storefronts and more.

Development finance lending criteria

When looking at applying for a development finance loan, you should keep in mind the following, as most lenders will assess you against the following eligibility criteria:

  • Terms of the loan: this is typically between 6 and 15 months, but depending on the lender it can be more than this
  • Feasibility of the project: if the lender has too many concerns about your development project, the application may be declined
  • Security: the level of security for the site or building should be of a good standard
  • Level of experience: the applicant should have a good commercial background or experience in property
  • Location: this will also be taken into consideration by a property finance specialist.
  • Loan to value maximum: the lender will usually provide in the region of 55% of GDV

How can I apply for development finance?

If you are applying for development finance, keep in mind that it does not work in the same way as standard mortgage applications.

In most cases, property development specialists will assess the value of the property, and determine what the loan amount will be based on this assessment, as well as the borrower’s overall eligibility.

property-development

Development finance can help to realise your dreams of carrying out a renovation project.

At some point, you may need to provide details such as:

  • Development costs
  • Development appraisal
  • Planning permission details
  • Details of the building or site, such as the price of the site/property as well as the location and value
  • Gross Development Value details
  • Company structure
  • Details of all applicants involved
  • Asset and liability statement for applicants involved
  • Details of the main contractor
  • Details of the project manager for the development project

You may also need to provide paperwork to apply, which can include the following:

  • All drawings and designs of the development project
  • A detailed breakdown of all costs
  • A complete schedule of works that will be carried out
  • A planned exit strategy
  • A completed Asset, Liability, Income and Expenditure Summary (ALIE)

How are development finance funds transferred?

If you are successful with your development finance application, you will receive your loan in stages by Magnet Capital.

There are a couple of reasons why this happens: first of all, payments are given in stages to ensure that the money is always proportionate to the overall value of the work that is being carried out in your project.

Initially, as part of the first stage of how development finance works, you will receive a certain amount upfront in order to secure your site or building. The amount you receive will be determined prior to signing the contract.

Payments are released each time current work on your project has been signed off by a surveyor (who is typically instructed by your lender to manage the site and work undertaken). If all current work is approved and it has met the terms and conditions of the loan, further instalments are provided.