All Posts By

Ashley Ilsen

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.

property-finance

A Guide: What is the difference between bridging finance and development finance?

By Blog, Development Finance, Lending

Those looking for property finance will often confuse bridging finance and development finance. Whilst it is true that they do have similarities with each other, such as:

  • They can be used to help fund the purchase of residential and commercial properties
  • They are secured loans
  • They are often used to avoid traditional property chains

They do also have a number of differences. If you are looking at getting specialist property development finance to help you buy a property, it is important to know the difference between the two, so that you can find the right product that you will require.

When is bridging finance used?

Generally speaking, bridging loans are linked to completing properties on a tight deadline. This means that most borrowers tend to opt for bridging finance when they need to complete on a flat or buildings within a month, or sometimes as little as two weeks. It can also be a popular option for:

  • Buyers looking to purchase a property at an auction house
  • Homeowners who are moving, but have yet to sell their existing property
  • Those raising finance for business growth

When is development finance used?

Those applying for development finance will use this for property development purposes.  This means that this kind of specialist finance is better suited to those who:

  • Are looking to renovate a new property from a plot of land
  • To cover construction costs
  • To extend or build up a new property

How funds are released with bridging finance

If you decide to go with a bridging loan, this will typically be provided upfront in one lump sum, enabling you to complete the purchase of a property on time. For an auction, this is particularly important, as you need to provide the full funds within 28 days of the gable hitting.

How funds are released with development finance

If you choose development finance, the funding you receive will usually be in instalments, based on different stages of the property development process. Payments will be provided once the current work has been signed off by a surveyor.

funding-property-development.

Before applying for funding, it is important to be aware of the fact the loans are released differently depending on the product you choose.

One of the main reasons that money is released in instalments with this kind of finance is because lenders want to make sure that the loan amount given is proportionate to the value of the work that is being undertaken.

It provides a number of benefits, as it helps to maintain positive cash flow and it makes sure you keep within budget.

Average loan terms

When it comes to both bridging and development finance, they both tend to have very similar loan terms. This is usually anything from 6 months to 15 months in total.

Once the loan term comes to an end for either type of finance, the repayments are rolled up (unless they have been paid on a monthly basis) and then the loan is fully repaid once the sale or completion of a property has gone through.

In the event that the property has not been sold or completed, then the borrower has the option to refinance with the same lender, or choose a different lender. However,  it is important to keep in mind that terms of the loan may not be so favourable to you the second time around with either loan types.

How the amount you borrow is calculated through bridging finance

Your bridging finance loan will be calculated on the loan-to-value (otherwise known as LTV). That means that the borrower needs to pay a deposit, and then the rest is paid by the lender.

How the amount you borrow is calculated with development finance?

Rather than your loan being based on the loan-to-value, a development finance loan is calculated on Gross Development Value (GDV). This refers to the overall value of the loan once all construction and renovations have been complete.

 

planning-permission

A Guide: What happens if you are rejected for planning permission?

By Blog, Development Finance

What can you do if you are rejected for planning permission?

If you have recently made a planning application for a building project and had it refused, you may be feeling disappointed, and perhaps wondering what your next step should be.

No need to fret: there are still a variety of options available to you if your application is denied. Read the guide from Magnet Capital below to see what you can do if your planning permission application is refused.

Why has my planning permission application been denied?

There are a number of reasons as to why a planning permission application can be refused by local authorities. The most commonly cited are as follows:

  • Your building project would restrict road access
  • The building overshadows a neighbour, blocking light
  • The project would cause a loss of privacy to other surrounding homes
  • It has a negative impact on highway safety
  • Your property is a listed building
  • The building project impacts on trees
  • The project uses hazardous materials
  • The building projects appearance would be out of character with the existing property

Make changes during the application process

The planning permission process will typically take eight weeks, or 13 weeks at most if it is a more complex project.

In this time, you can make objections to some of your plans and it could potentially determine the outcome of your decision.

If objections are raised, it may be possible to make changes to your current application, providing that they are small and will not require the planning officer to start the process again.

Objections raised during this time, and a willingness from you to make changes could also see the planning office grant you planning permission, based on the condition that you confirm that you will address the objections. You will have to provide evidence to your local authority of having done this, and usually within a certain time frame.

Resubmit your application

If planning permission has been denied, and it was rejected on planning grounds that you believe can be resolved, then it may be worth making changes to your existing application and then to resubmit once more.

In terms of cost, resubmitting a planning permission application may be a little time consuming, but it won’t cost you anything more, providing that you resubmit the planning permission application within a 12 month period, and the overall outcome of the project still remains fairly similar to the originally planned project.

Launch an appeal against the rejection

If you believe that your planning permission application refusal has been unfair, then it could be worth investigating further about an appeal.

If you do decide to make an appeal, you will have to do so within three months (the deadline for homeowners) whilst if you are a developer, major projects will require an appeal within six months.

planning-permission-construction

Making alterations to your planning permission application could make all the difference.

If your planning permission application is rejected, the council will automatically send you further information as to how you can appeal the decision.

When making an appeal that council has to respond to it within a period of six weeks. After you have received a response, you have three weeks in order to comment and provide any supporting evidence.

Get professional advice

If you are unsure as to what your next step should be, and what changes you might need to make, why not look at getting professional advice first before making a decision? This may be particularly worthwhile if you are intending to go through the appeals process, which can tend to be complicated and are used for the intention of being the last resort. As a result, a property finance adviser could help to give you clarity on the next step you should take.