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.
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.
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 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 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.
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.
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:
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.
There are a number of different reasons why someone may opt for development finance such as:
Properties include:
houses, flats, flats, barns, farmhouses, garages, warehouses, offices, storefronts and more.
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:
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.
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:
You may also need to provide paperwork to apply, which can include the following:
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.
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 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.
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:
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:
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.
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.
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.
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.
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.
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.
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.
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:
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.
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.
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.
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.
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.
This is of course completely true when it comes to underwriting a new loan, but this is also easier said than done. Is there something us as lenders can be doing to help a property developer client be as profitable as possible?
When we first look at a new development finance proposal, one thing that’s for certain is that the costs we are presented with on day one are unlikely to be completely accurate. Some expenses will be missed, delays will happen and ultimately a developer’s costs at the end of the project will often be some way away from the initial appraisal received. With the full effects of Brexit on building costs not fully known at this point, it’s more important than ever for developers to make sure that their costs are as accurate as they can be. One area I find that is often overlooked is the cost of development finance, and I believe that lenders should be doing more to be completely transparent about what the cost of funding will be to a developer client from day one, and what this means for their bottom line. This includes being completely clear about hidden costs, such as extension fees, admin charges or any other unfortunate ‘extras’ that I’ve seen pop up in some loan agreements.
The beauty of development finance is that there is more than one way to skin a cat. Every lender approaches development funding differently and more choice can only be a good thing for our market. I do, however, find it slightly disconcerting when a client chooses to go with another lender on the basis that their offering is ‘cheaper’ despite the lender not being fully open about other charges that may not initially be declared. Sadly, it happens all too often.
Our industry has come a long way over the last decade. Reputationally we are wonderfully positioned compared to where we were when I joined the industry in 2012.
It is though, essential that we continue to improve our standards, which includes being completely honest, open and transparent about the way we charge our customers.
At Magnet Capital we thrive on repeat business, with both our broker partners and developer clients. One of the reasons this is the case is because by being transparent on day one, our clients can pinpoint as accurately as possible where their profit will sit come the end of their project. Fewer nasty surprises for a client at the end of a facility term means a much more likely chance of developing a genuine and successful long-term relationship. Trying to predict where the market will be in 12 months, along with fluctuating costs, is making property developer’s jobs harder than ever, and it is therefore our role as lenders to help them as much as we can.
If you are looking to apply for development finance in order to be able to fund a building project, then it is important that you prepare as much as possible before making your application.
There are a variety of things that you should be taking into consideration, so that you can carefully plan the application that you make, and in order to ensure that getting a development finance loan is the right option for you. We take you through the information that you will need to provide, as well as overall lending criteria for development finance.
It is important to keep in mind that development finance lenders will usually consider application on a case-by-case basis. However, it is still important to keep the following points in mind too:
In terms of the information that you will need to provide to a lender when applying for a development finance loan, you will find that you will require these details:
Other important items you will need to provide include:
Development finance loans can make a fundamental difference to the process of renovating for property developers, helping to provide cash flow so that the work can be completed in the most efficient way possible, without having to worry about how the project will be financed, also helping to reduce potential stress.
However, if it is the very first time that you have applied for development finance, you may well be wondering as to how the funds are transferred, and how the overall process works.
In this guide, we will explain in detail exactly how the funds are transferred in different stages over the course of a building project.
It is important to remember that development finance loans are always released in stages through a number of payments. This is because development finance lenders want to ensure that the loan given is proportionate to the value of the work being carried out.
It is also to make sure that the loan is being used under the conditions initially agreed on by the two parties concerned.
The first stage of development finance funding will typically involve securing the site. The lender will usually provide an agreed set amount upfront, so that you the buyer are able to complete the purchase of a property.
Whilst the exact amount that is provided upfront will often be dependent on the development finance product that you choose, you can usually expect this to be somewhere in the region of 40% to 50% of the current valuation of the site.
From this aforementioned figure, charges and interest will be deducted, which will then leave you with the net development finance loan.
Throughout the course of the build, payments will be released in stages by the lender. This is to help you to continue working on the building project. Payments are released once the current work has been signed off by a monitoring surveyor.
The surveyor in question is instructed by the development finance lender to manage the site and work, in order to ensure that everything is on track with the project.
Typically, the monitoring surveyor will carry out checks to ensure payments are released.These include checking that the work has been completed and meeting the terms and conditions of the loan itself.
This includes abiding by the agreed upon build schedule, as well as cost management and ensuring that the quality of the work carried out is to a high standard.
If the monitoring surveyor finds any discrepancies during the building project, compared to the agreed upon plan, then it is possible that the stage payments for development finance could be delayed.
One of the great things about development finance is that it enables you to keep the cash flowing throughout a building project. Make sure that you follow the work schedule, as well as keeping a cash flow forecast to ensure the project runs smoothly.
When it comes to development finance and cash flow, it is extremely important that your costings and build schedule is accurate in order to keep everything on track.
This is important, as whilst lenders will usually be happy to release equal amounts each month, you could find some months more expensive than others.
If you are looking to apply for funding through a development finance lender, it is highly likely that you will be using this loan in order to finance renovation or construction costs for a building you have purchased. However, the last thing you want to do when carrying out construction work is to poorly plan it, and potentially end up not getting the planning permission you required and having to knock the building down, or pay a fine. But which types of buildings need planning permission, or what kind of projects do? We decided to point out the key facts so that you are fully aware of when planning permission is needed.
If you are intending to add an extension to your property (providing it is not a flat or maisonette) it will usually fall under the category of permitted development, therefore meaning that you will not need to get planning permission. This is as long as it falls into one of the following categories:
If you are deciding to create an outbuilding like a shed, garage or greenhouse, these will also fall into the permitted development category. It is possible for you to build a garage or an outbuilding on your property without getting permission providing that it is considered to be of reasonable size.
Have you checked carefully to see if you are liable to get planning permission for your renovation?
That is, it should be no higher than 4 metres. Of course, there can be exceptions where planning permission may be required if it is not a typical outbuilding. In this scenario, contact your Local Planning Authority or your Planning Portal in order to obtain more details of potential planning exemptions for outbuildings.
If you are looking to carry out internal works to a building that you have bought, such as a garage conversion, adding a new kitchen or bathroom, creating a loft conversion or rewiring, you will also not usually need to get planning permission.
However, if you live within a Conservation Area, or if you are looking to make renovations within a Listed Property, then you are advised to check with your local planning authority (LPA) first.
If you are looking to undertake a project that means you are hoping to completely alter the building from its original use, then it is probably the case that you will need to apply for planning permission.
Looking to create a new building entirely? You will also most likely need to get planning permission for it before going ahead and start construction works. Deciding to go ahead without getting this permission is risky, and financially so too. You could receive an enforcement notice from your local council, and ignoring could entail a number of legal and financial consequences for you.
If you need to get planning permission for the work that you intend to carry out, then there will be fees you will need to pay. If you are making a full application for a new single dwelling in England, then the cost will be £462, whilst different fees apply in Scotland, Wales and Northern Ireland. Meanwhile, if you require planning permission for certain types of home improvements you are carrying out, this will cost you around £206 in England.
Luckily, to simplify the procedure, all local planning departments use the exact same application form for planning permission, known as 1APP. This form can be found in your local area and the application can be done online via a Planning Portal.
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