Bridging Loan For Property Development
A Commercial Bridging Loan For Property Development is a bridging loan that is used for the development of property, traditionally bridging loans and property development finance were both different finance products a bridging loan was used to release capital from a property that you already own, or to facilitate the purchase of a property before you had sold your own either help you buy a property quickly or if say for instance you had a problem with one of the sellers falling through in a property chain. However after the financial crisis of 2008 many bridging loan lenders started to look at commercial property developers as a new source of loans, the main difference between to the two products is that a bridging loan is paid out in full on the day of drawdown, so if you took a loan for say £200,000 the lender would give you £200,000 when the loan completed, with property development finance it is very different in that you receive your funds in what are called drawdown stages, this would be an initial drawdown on the land or site purchase and then payments at key stages of construction, floor slab, wall plate, first fix the second fix and then practical completion.
What this means is that rather than with a bridging loan where you get the funds in one go and have to start paying the whole of the interest on day one, with development finance you are only paying interest as you draw down the finance, this makes a huge difference to the overall interest you eventually pay on the development, for instance, if the market is buoyant and you have a sale you may only ever drawdown 80% of the loan before you redeem it.
With a bridging loan because you have the full amount on day one you are having to pay interest on the whole of the loan. Bridging loan lenders cottoned on to this as they looked to expand their lending books with fresh capital from both institutional and private investors and also peer to peer lending sites, as a result, they have tailored their loans to reflect that of traditional development finance lenders, so they now offer commercial bridging loans for property developers alongside their traditional bridging loans.
What interest rates can I get on a bridging loan for property development
High street banks will always offer the most competitive interest rates, however they are nowhere near as accommodating as a bridging loan lender, who will offer a far higher loan to value some even going up to up to 90% of all of the costs that the developer will incur in developing the site, furthermore when you look at the exit fees that high street banks put on their loans of up to 1.5% of the resale values of the properties then the rates can be highly competitive, bridging loan lenders do not charge any exit fees so it is important to look at the whole picture before deciding which is the right loan for your circumstances and which one is going to offer you the most amount of funding at the best rates and who is going to be the easiest to deal with over the course of your development project.
High street bank rates can be as low as 4% if of course, you qualify as often they will only deal with experienced existing clients which excludes many first time developers or developers who have only completed a few schemes in the past, bridging loan lenders interest rates start at 6-7% but as I said because there are no exit fees on a bridging loan when taken overall the costs can be remarkably similar, also with bridging lenders you are far more likely to be dealing with a lender who is more sympathetic and not just ticking boxes to see if you qualify, the thing to remember also is that this is all specialist bridging lenders do for their business high street banks see property development finance as just a small offshoot of their core retail and investment markets.
What are the Arrangement Fees
Arrangement fees for developers taking out a bridging loan for property development are always 2% of the loan amount that has been agreed, with a bank it would be between 1 and 1.5% of the loan amount but then you have to factor in the hefty exit fee which is based not on the loan amount but the overall value of the development which can amount to a sizable sum off your profits. It is really just a way of keeping the interest rate down to make the loan more attractive but you should always calculate the overall costs of finance when making a comparison of what exactly your total finance charges are likely to be.
What Are The valuation Fees?
Valuation fees will always be the same with a bank or a bridging loan as these are what the surveyor will charge to value the scheme that you are looking to finance, you should ask for a list of valuers and get a quote from each one as these can vary significantly. One problem with banks is that they tend to rely on large valuers who can be significantly higher than say a valuer used by a smaller bridging loan company.
Legal Fees for Bridging Finance
As with valuations the high street banks tend to stick with expensive solicitors and as you have no say in who they use you have to take whoever they suggest, which is often more expensive than a specialist lender, however, both types of lender will agree to the fee for their legal fees in advance so you have a clear indication of your costs.
What you can do now
We have dealt with both high street banks and specialist lenders for many years and can guide you through the whole application and get you the development finance you require with the least amount of fuss and effort, we will also point out to you the merits of all of the offers we obtain for you and make sure the finance fits in with your requirements, simply give us a call to discuss your proposal or complete our web form and we will contact you to go through your proposal and tell you what finance is available to you and at what overall costs.
With over 20 years experience you can be assured of the very best help and advice from our team.
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