How to finance property development

How to finance property development

It has become harder to finance property development during 2016. At the beginning of the financial year, an additional 3% stamp duty surcharge was put on second properties and investment properties, raising the costs outside of the property value itself.

In addition to this, the British EU referendum vote has created financial uncertainty and the treasury is due to give the Bank of England new powers, in 2017, to restrict the size of buy-to-let loans.

Property investment

Property investment opportunities still exist in the UK, as both the population and number of buy-to-let landlords continues to grow. Opportunities includes development projects for resale or development projects for buy-to-let.

It is essential for those looking at property investment to have an education in its field, so attending some form of property training course or finding a property development mentor, is highly recommended.

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Property development finance

Acquiring property development finance can be one of the first key challenges for a would be property developer. Both new and existing property developers face the same financing challenge and this has become a barrier for many during 2016.

For most people who are looking for property development finance, the high street is no longer a welcoming place. High street banks continue to change and tighten their position on lending criteria, so property developers now need to look further afield.

There are now two key routes that can be used to acquire financing for property development:

  1. Specialised lenders – Many specialised lenders focus purely on the property development market and they have in depth knowledge and experience in this sector. This means that they understand the development process and offer products targeted at easing that process.

Two of the most useful types of finance are first charge debts and second charge debts. A first charge debt is a loan that has been designed to help the property developer purchase and develop a project. A second charge debt is a loan that is designed to help improve the developer’s cash flow, often for completing a project when available funds have run low.

  1. Joint venture investors – As an alternative route, joint venture investors often invest in a property development projects on profit share terms. Quite often, joint venture investors will have experience in property development, and hence, can mentor developers to ensure a successful and profitable outcome.
Categories: Real Estate

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