Mortgage, Bridging Loan or Development Finance?
If you are planning to invest in a property that needs renovating or improving in some way, you may need to secure financial support. For property development projects like these, typical options on the table include bridging loans, mortgages and specialist property development finance.
The question being – which of the available options is the right option for you?
Conventional Mortgage Products
In terms of cost effectiveness, traditional mortgages provide the ideal long-term solution. Repaid over several years or even decades, mortgages are useful for spreading the costs accordingly. On the downside, a conventional mortgage can be difficult and time-consuming to organise in the first place. Particularly where bad credit mortgage loans are concerned, which can also be significantly less competitive in terms of borrowing costs.
Furthermore, there’s typically no allowance for traditional mortgage loans when the property isn’t already inhabitable and had a good state of repair. Hence, for investments where the objective is to develop a rundown or outdated property, conventional mortgage products may be out of the question.
Where a property isn’t currently considered habitable, a bridging loan could be the ideal funding solution for the renovations and development required. With bridging loans, funds can be raised for any purpose whatsoever, secured on a wide variety of property types. So even if the property in question isn’t currently habitable, bridging finance may be accessible.
Bridging loans are designed to be repaid within a matter of months, in the form of one lump sum payment on an agreed date. The short-term nature of bridging finance can make it a uniquely affordable solution for investors and property developers. Perhaps most importantly of all, a bridging loan application can be completed and the funds made available within a matter of days. Eligibility is typically established exclusively on the basis of security/collateral provided, which can mean no credit checks and no proof of income required.
Similar to a bridging loan, development finance provides rapid access to the funds required, to be repaid in full within a matter of months. Nevertheless, development finance products are typically more suitable for ground-up developments and more extensive construction/renovation projects.
Qualifying for development finance can be a little trickier, as the lender needs to collect information on the current nature and value of the asset, the details of the project plan, how long it will take to complete the project, estimated costs for its completion, eventual revenues and so on. Rather than simply securing the loan on the borrower’s existing property – as with a bridging loan – there may be more to take into account.
Nevertheless, development finance can be uniquely accessible and affordable – particularly where larger and more challenging projects are concerned.
The Importance of Independent Advice
In accordance with your objectives and requirements, you may find yourself in a position where all three options are readily available. Nevertheless, one of the three will undoubtedly suit your goals and your budget better than the other two.
This is precisely why independent advice and consultancy should be sought from the earliest possible stage. Rather than approaching any specific lender directly, take your case to an independent financial adviser or broker. Discuss the available options with an impartial third party and have them carry out a whole-of-market comparison on your behalf.
Only then can you be sure the financial product you select is the most affordable and appropriate for your needs.
Article by iConquer