The current shortage of housing in the UK and the widespread availability of underused, unoccupied or derelict buildings offers fertile ground for small builders and developers to contribute to improvements in the housing stock.
A commonly encountered obstacle to such property development, however, is ready access to the initial funding required for that work, pending completion of the renovations or onward sale of the building.
The answer to that lack of immediate funding may lie in a bridging loan for property development.
How does it work?
A bridging loan may help you realise your development project. With the help of a bridging loan:
- you purchase a building plot or existing building in need of renovation;
- proceed with your development project – thereby adding to its capital value; and
- on completion of the works, remortgage the property at its higher value or sell on the refurbished home – using the proceeds to fund further development projects.
Sounds simple and straight forward?
When described like this in three simple steps, it might all seem very simple and straightforward. Reality is rarely quite so easy. Making a success of your development project calls for fine timing, careful planning and a clear strategy.
That is where an independent financial adviser and specialist in the provision of bridging loans is likely to pay dividends.
When choosing your adviser or financial broker, you may bank on their assistance in:
- assessing your development project from the word go;
- benefitting from advice on the size of the bridging loan you may need; and
- receiving help in determining the expected completion date, the term of the loan, and your eventual exit strategy (remortgaging or selling on).
Getting a bridging loan
Since the economic crisis of 2008, high street banks have become increasingly wary of advancing loans for these types of relatively small-scale development. The available pool of potential lenders has diminished in size.
Finding a willing lender for your development project, therefore, is likely to be made significantly easier through the help of an independent financial adviser with experience in arranging bridging loans.
The loans represent a specialist form of borrowing. Although interest rates may be somewhat higher than other types of lending, bridging loans are typically short-term – generally between six to eighteen months in duration. Don’t be put off by that finite term, however. Many lenders recognise that building and development schedules may overrun. Some are prepared to renew a loan that has run its term so that you may safely complete your project.
In terms of eligibility, any lender will consider your track record of completing similar development projects in the past and the extent to which you have successfully managed your financial affairs. Credit checks are inevitable – and in your own best interests, too.
In addition to sole traders and trading partnerships, limited liability companies may also apply for bridging loans for property development – although successful applications are more likely to be made by limited liability companies that are Special Purpose Vehicles (SPVs) specifically set up for the property development project in hand.