What is Property Finance?
Of course there is no product called property finance, this describes a range of products, all secured on property. This whole market fell into the abyss in 2008/9, but has since slowly come back to life. A market once dominated by the High Street Banks is now very fragmented and much more competitive, with smaller lenders far more responsive to customer's needs. Lenders respond better to applications from borrowers who can present a solid proposal. Lenders also prefer deals with good levels of profitability, either in sales prices or rental yields.
Commercial Mortgages are available against practically any commercial property. The property can be occupied by the owner or held as an investment and occupied by a tenant.
The availability and price of a Commercial Mortgage will depend on the quality of the occupier and the type and location of property. The quality of the occupier will indicate the likelihood of mortgage repayments being met and the type a location of premises will indicate the potential for selling the property if required.
Advances levels are more conservative but several lenders are in this space thus interest rates are more competitive than they have been.
Buy to Let Mortgages
As the demand for rental properties has increased over the years this part of the market has remained fairly well serviced by the lenders. Experienced landlords will get better advances and rates but it is rare to find any lenders willing to lend more than 80% against a property. Even more important will be to ensure the rent covers the mortgage repayments will a good 25% margin on top.
This is the type of finance required in order to carry out a property development, be it a first-time developer of one house in a back garden or an established developer building 500 houses on a green-field site. It is vital that the borrower can demonstrate a certain level of expertise (own or bought in) and a feasible plan including a reliable exit where the finance can be repaid. It is possible to finance up to 70% of the end value of a development or even 90% of the total costs. This may involve a mix of “first-charge” finance and what is known as Mezzanine or “Second-Charge” finance. For larger, profitable deals there are even funds available for the equity element of a development.
This is the type of finance is usually required to purchase a property in a hurry prior to it being re-financed (or sold) at leisure. The hurry may be because the property is being sold at auction or by a liquidator. Bridging is also the standard finance used when a developer is likely to simply refurbish rather than rebuild. Bridging is normally more expensive finance; it is, however, normally used for a short period and is designed to do a job. It facilitates the acquisition of a property where a disposal or refinance is already planned. Bridging Finance can also provide short-term funds whilst a property is being sold. Funders will need to see a way of the borrower repaying the loan in short order, typically within 6 to 12 months. Thus any borrower must have a demonstrable way of repaying the loan.