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What is a Bridging Loan For Property Development?
A Bridging Loan For Property Development is a loan for the development of property, in essence, it is really property development finance, basically when the high street lenders pulled out of the market after the financial crash in 2008 property developers started looking for bridging finance for property development which was nearly impossible to source, however after a while bridging loan companies started to look for additional business and so started offering what is basically a bridging loan secured against land and the construction of property for development and sale. This enables developers to tap into a source of finance that had never before been available to them and property developers started to use this instead of dealing with banks who had restrictions on who they could and could not lend too. Also Bridging companies offered competitive rates and were far more flexible and open-minded to the projects they would fund and also what level of development experience borrowers had.
What Experience do I need for a Bridging Loan For Property Development?
If you approached a bank for development finance they would not consider lending to you unless you had a strong previous track record of completed developments that you had sold, if a developer builds and keeps the properties this is not considered a good track record they are looking for developers who have actually sold the properties for a profit, Bridging loans for development are far more relaxed about lending to first time developers so your chances of getting a loan are far better, they are even happy with borrowers retaining the finished properties for investment. Obviously, an experienced developer is more attractive as a lending proposition and will always be the first choice however for a first timer at least funding is available to get them on to the first step of the ladder. We have clients who started with us as inexperienced who are now doing multiple schemes, this would just not be possible without Bridging loans for property development finance.
What are the Interest rates for Bridging Finance For Property Development?
Bridging loans have always had a reputation for high rates of interest and in the past this was certainly true rates could be as high as 12 % per annum, whilst property development finance could be obtained from as little as 4% per annum, however as more and more Bridging lenders entered the market to offer development bridging rates began to fall dramatically to the point they some lenders are now nearly as competitive as the high street lenders for the right schemes in the right locations. Rates can no go as low as 5% this obviously depends on the borrower's experience and what the actual development consists of and also what the loan to value is.
What are the Arrangement Fees does a Bridging Loan For Property Development have?
As with a traditional bridging loan bridging loans for property development usually have a 2% arrangement fee, this is about the same as a development finance loan would have the only real difference is that with a development loan it is called a commitment fee, at the end of the day it will still be payable whatever it is called. The good thing about using a bridging loan as development finance is that bridging loans do not come with exit fees like property development finance, with development finance you would expect to see an exit fee of as much as 2% of the GDV (Resale Values) this exit fee can really add up to a significant portion of your profits, think about it if you are making 20% profit on your development then this 2% exit amounts to 10% of your profit all the more reason to use bridging finance to fund your development.
What Are The valuation Fees?
A bridging loan lender will always want both a valuation of the scheme you intend to develop detailing what the development costs are likely to be and what the resale values of the completed development will be, on larger developments they would also want a quantity surveyor to look at the numbers i.e build costs etc to ascertain that all of the figures that you have put forward stack up. So valuation fees can vary quite significantly with each case, with a single dwelling you could be looking at as little as £300.00 for a quick desktop valuation (this means an internet search for sold prices and a small amount of paperwork) all the way up to £3-5000.00 for a scheme that would require a detailed valuation with a quantity surveyor checking everything is ok and accounted for.
Legal Fees on a Bridging Finance For Property development.
As with any loan for the development of property you will be expected to pay the lenders reasonable cost for their solicitors to deal with your loan application. The amount will be agreed in advance with you and once agreed you will have to give their solicitors and undertaking to pay the amount or hand over the amount up front before any legal work starts on your loan application. The amount agreed is generally based on the amount of loan you are taking out, but as a very minimum you can expect to pay £300.00 and for larger amounts, it can be significantly more.
1st UK Finance has been dealing with bridging loans for property development for many years and have access to all of the UK's specialist bridging loan lenders, contact us now to compare rates and get your best rates.