If you are considering taking out financing for residential property developments then getting as much advice about the subject as possible is essential. Of course along with the advice you will also want to make sure that you get the cheapest interest rates and best deal on your mortgage. Finding a lender can be hard but if you choose to go with a specialist website it can be made much easier. One of the biggest pluses you can have in your corner when approaching a lender for money is the correct paperwork. You should make sure that the corresponding documentation for planning permission is on hand as the lender will not sign off the loan without having this. Sometimes experienced property developers can get away with it but those who are new to the venture would certainly not. The rates of interest for residential property developments financing do vary. With the majority of lenders this will be between 1.5% and 2.5% plus the base rate which is defined by the Bank of England. There are many factors which the lender will take into account before setting the rate. The value of the property you are wishing to develop will be taken into account along with the size of the project and what you are intending to do.
The loan to project costs for residential property developments are governed by the projected gross development values. This will be taken into consideration when it comes to determining how much funding you will be able to obtain for your project. Usually lenders will allow the individual to borrow in the region of 70% to 75% of your properties value, but this will of course be based on the individual. Those who have an excellent record in property development can sometimes get 100% of the value they wish to borrow. In the majority of cases you would have to consider where you would get the shortfall from to make up the costs and some lenders will want this in black and white. A broker should also talk over with you the different aspects and types of mortgage that are on offer when it comes to finance. You can choose to take out an interest only mortgage or repayment. There are disadvantages and advantages to both.
With the repayment mortgage you will pay a little of the interest and the capitol each month, this means that the mortgage will be fully paid off when the term ends. With the interest only the monthly repayments are kept down but when the mortgage reaches full term you will still owe the capitol. The majority of lenders will not allow you to take a loan this way unless you can guarantee you have the money to pay off the remainder in full upon completion. You will also have to decide whether you want residential property developments finance over a fixed rate or variable rate of interest. A fixed rate means you can budget as the rate of interest will remain set for a certain period of the mortgage. A variable will go up and down in line with the base rate which is set out by the Bank of England and makes budgeting a nightmare but you can take advantage if the rate of interest drops to an all time low. About the author: Sean Horton is a Director of Enhanced Wealth, a whole of market mortgage broker and IFA specializing in mortgage advice and the associated areas of income protection, mortgage protection, mortgage life cover and Residential property development.
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