By Oliva Wilson
Whether you are a lender or a property developer looking to make the first investment, it is beneficial to know the difference between the different kinds of property finance solutions, which are available at your disposal.
A majority of the property developers require some kind of finance for taking their first step into the property market. Here is a list of property loans that you can use.
High Street Mortgages
This is a basic property loan found in most of the banks. The basis of application for this mortgage is on the ability to pay back the loan and the value of the property that you are buying. They are available in various forms starting from the one that pays back the interest to the mortgages with fixed interest rate. This kind of finance is suitable for properties where you are planning to live in while the work is being completed.
You should not get it for properties that you are planning on renting.
Bridging Finance
When you have to secure finance for developing a property you have bought in an auction or simply as a part of the property development project, you can opt for bridging loan. This loan will enable you to get a property in order to sell it, redevelop it, or arrange some permanent finance from this.
The bridging loan is the financing bridge that takes you from the point of purchase to the point of sale. These loans run on shorter terms than the other conventional forms of loans. However, it is easier to arrange it. This will leave the borrowers with an immediate source of funding for projects that are time specific.
Second Charge Mortgages
Second charge mortgage is also known as,
Secured mortgage
Second mortgage
Second charge loans
It is essentially a top-up to the current loan. In order to add a value to the property or re-mortgage for freeing up the funds, you can choose a second charge loan. This property finance is obtained against the value of the property. However, unlike a high street mortgage, you do not have to live in the property in order to get the loan. It can be beneficial for people who are changing their occupation. A second charge loan has a wide set of criteria catering to a diverse set of customers.
Portfolio Finance
When you have to borrow money against your property or have to collect investments or properties, you have to struggle a bit in order to get multiple mortgages. If you want this kind of property loan then the property holdings will turn out to be more efficient. This is important for a long-term loan.
Mezzanine Finance
This property loan provides fund, which covers up the shortage of total cost of developing and principal lending.
When the economy is uncertain and the lending levels are pretty down, this property loan will help in filling up the gap, particularly if the gross development cost is not supported by the principal property loan that is aimed at funding the project completion for maximizing the potential return.
If you use mezzanine finance, it will make a second charge against the property.
Commercial Mortgages
A commercial mortgage is quite similar to the high street mortgage, except for the difference that the property against which you are securing the property finance has to be classified as a commercial or classed. This includes,
- Offices
- Shops
- Factories
Another difference is that instead of the personal income, the lender checks the business assets and income. The assess it to check your ability to pay back the loan. You might require a future business plan while applying for the loan, particularly if you are new to this field.
Before choosing the right one, make sure that you always explore the funding option. This will help you to get the best loan with the best interest rate.