Unmortgageable Property Finance

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Successful property developers work hard to find the best deals, and in the extremely competitive world of development it’s often a hard task to find opportunities for making a profit. As with any business, the most successful developers are those who buy low and sell high, but in many cases it can be difficult to obtain finance for properties with potential; a building that is in disrepair might be a great opportunity for refurbishment, but few mortgage providers will be willing to approve a loan for its purchase.

In order to take advantage of these opportunities, developers must turn to specialist lenders who provide unmortgageable property finance. This is a form of bridging finance that is specifically designed to meet the needs of developers who intend to renovate a property, whether it needs extensive work or simply a few internal modifications. Loans are available in many different forms and sizes, depending on the lender, and the fee structure can be altered to meet the needs of each individual borrower.

Though unmortgageable property finance is a highly flexible and powerful tool for developers, it’s important to thoroughly understand the ways in which it works before proceeding with an application. This article deals with some of the main points of unmortgageable property finance, but aspiring developers should be sure to consult their lender or broker before making an application.

What Makes a Property Unmortgageable?

Mortgage providers have a very rigid approach to the loans the approve, and their criteria is based upon their ability to sell the property on the open market. A building which cannot be lived in or requires expensive investment is hard to sell, which is what makes most mortgage providers turn away from these types of building. This can be for a variety of reasons, but is most commonly due to the property falling into disrepair.

Why Purchase an Unmortgageable Property?

To the layman, it might appear as though an unmortgageable property is a poor prospect for development. In many cases, a property will be unmortgageable because it’s unfit for habitation and in need of renovation. However, a specialist property developer with experience in refurbishing a property can take a building that’s uninhabitable and completely remodel it, turning a derelict structure into a glittering block of flats worth a fortune.

How Does Unmortgageable Property Finance Work?

Unmortgageable property finance is a form of bridging loan, a flexible and adaptive type of finance that can be used for many purposes. In the case of lending for unmortgageable properties, a borrower will usually take out a loan for the purposes of purchasing the property and of restoring it. Once this is complete, the property will either be sold for a profit or a mortgage will be arranged. Usually, a developer will attempt to complete this process as quickly as possible, as a bridging loan is comparatively expensive to service - interest is charged monthly, rather than annually, so fees can quickly add up. However, most bridging lenders provide flexible payment structures that enable borrowers to service interest as they go or to “roll up” their payments until the loan is repaid.

One of the attractions of bridging finance is the flexibility which it offers, as lenders are comparatively free to choose their own terms and conditions. This means that unlike high street lenders, bridging lenders can take a borrower’s existing portfolio into account when considering their loan application, allowing them to leverage existing assets. Unmortgageable property loans are secured against the borrower’s assets, and are usually taken out against the property being refurbished. This means that if the borrower should fail to repay the loan, the lender will be able to recoup their initial investment through the sale of the property.

Common Purposes of Unmortgageable Property Finance

The most common reason for taking out an unmortgageable property loan is to bring the property into a habitable condition. However, every property is different, and there are varying degrees of work which need carrying out. The many bridging lenders who offer unmortgageable property finance are able to cater for many different needs, and can provide loans to match projects of all different sizes. The purposes listed below are some of the most popular reasons why developers take out these types of loans.

Refurbishment

Refurbishment is generally superficial, and is concerned mostly with restoring the appearance of a property. This can cover plastering, painting, furnishings, internal fixtures and fittings, as well as many other types of work, but is mostly confined to decorative purposes. Depending on the property, refurbishment may not be particularly costly, but for luxury apartments and extensive work refurbishment loans may be quite large.

Renovation

A property in need of renovation often requires extensive structural work such as remodelling or extensions, and renovation finance will cover the costs of rebuilding and reworking the property. Renovation may be used on property in any condition, and some renovations can be extremely far-reaching; turning a decrepit warehouse into an office, for instance. Because of this, renovation loans can often reach 8 figures, and may last for longer than 12 months.

Demolition

Sometimes the best thing to do with a building is to knock it down and build another one. However, the house must still be purchased ahead of time, and since no mortgage provider will touch it a bridging loan should be sought instead. Loans for demolition will usually cover the cost of the entire project, including initial purchase, the demolition itself and the construction of a new building in its place.

Short Lease Purchase

Renewing a property’s lease becomes extremely expensive when it falls below 80 years, and many mortgage providers refuse to approve mortgages on a property with fewer than 60 years on the lease. Therefore, a buyer must make use of unmortgageable property finance in order to secure the property and renew the lease. Lease extensions can cost upwards of 10% of a property’s value, depending on how long is left, so a short lease purchase loan can be fairly large.

Common Uses Of Development Finance

  • Overview

    Reliable finance is a crucial part of any successful development project, and bridging lenders offer a wide variety of attractive products in this sector.

  • Barn Conversion Finance

    Barn conversions can result in amazing properties, but require a lot of work. Specialist lenders provide vital financial backing to keep these projects on track

  • Construction Finance

    Successful completion of a property development project relies on a strong, stable source of finance from start to finish, which construction finance provides.

  • Conversion Finance

    Conversions come in all shapes and sizes, and conversion finance lenders provide the flexibility and adaptability that developers need in conversion projects.

  • Development Exit Finance

    Development exit finance enables property developers to react flexibly to changing situations, and to restructure their financial commitments to maximise profits

  • Inexperienced Developer Finance

    Inexperienced developers may well have access to lucrative opportunities, and the flexible approach of development lenders enables them to take on projects

  • Land Acquisition Finance

    Successful property development requires stable funding from the very start, and land acquisition loans are an important element of any construction project

  • Mezzanine Finance

    Mezzanine finance is an important ingredient in property development, and it enables developers to take on opportunities they’d otherwise struggle to fund

  • New Build Development Finance

    New-build projects need stable funding from start to finish, and new build development finance lenders provide the tools property developers need in this sector

  • Pre-Construction Finance

    There’s plenty of work to do before construction starts, and the costs of paving the way for a successful project must be met with pre-construction finance.

  • Property Development Finance

    Property development requires specialised financial solutions, and the UK’s development finance sector provides a variety of highly flexible funding options

  • Retail Conversion Loans

    Retail conversions can be lucrative opportunities, but developers must ensure they have appropriate funding to secure planning permissions and carry out work

  • Refurbishment Finance

    Refurbishment finance lenders provide the tools that property developers need to quickly seize and escalate renovation projects from beginning to completion

  • Self-Build Finance

    Self-build projects require a specialist touch, and there are many development lenders dedicated to providing self-build finance for precisely this purpose.

  • Site Acquisition Finance

    Moving quickly is vital for successful property development, and site acquisition finance is an indispensable part of any development finance package.

  • Unmortgageable Property Finance

    Unmortgageable property finance allow property developers to take out flexible finance solutions to refurbish and renovate properties for mortgage or resale

National Association of Commercial Finance Brokers Association of Short Term Lenders Association of Bridging Professionals

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