A good mortgage broker should also be able to advise a developer on whether residential or commercial finance is appropriate for their project. If the plan is to rent out the property, one of the wide range of buy-to-let mortgages will be the best option. These are based on projected rental income, rather than the developer's salary, so they are a useful financial vehicle for people without the scope to remortgage.
Credit: James Hardy
Commercial funding is generally more expensive, starting at one to two per cent above Bank of England base rates. The exact cost, though, will depend on the risks involved and the profile of the project. For more advice, ask your independent financial advisor.
The bank will start by organising a meeting with a lending manager, usually in the branch, and bring in commercial or residential mortgage specialists as appropriate. The bank’s development loan, for example, allows borrowers to arrange short-term funding for a project. When the work is finished, this can be converted to a residential mortgage, a buy to let arrangement, a commercial mortgage, or paid back from the sales proceeds. Other banks offering both commercial and residential lending follow similar procedures.
As with all commercial lending, banks will offer the most favourable terms to developers with a track record. But commercial funding is still an option for newcomers. The key is a good design, ideally from an architect, plenty of detail on planning and other consents, and a sound business plan explaining how the loan will be paid back.
Bed and breakfast property
Hotels
Freehold shops
Restaurants, cafes, fish and chip shops, takeaways
Leasehold shops
Bedsits
Offices, surgeries
Development land, farmland
Leasehold flats and leasehold flats with short leases
Flats above a shop
Leaseholders buying the freehold
Flying freehold
Land and building plots for self build (bridging finance can be provided to meet land purchase and build costs and then convert to a residential or commercial mortgage)
Source: NatWest
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The views represented in this article are those of the author and not of Channel 4. The purpose of the article is to provide general information only and does not constitute financial, investment, legal or other advice.You should not rely on any information provided in this article and you should always seek out independent professional advice relevant to your own particular circumstances.
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