Property Finance

Business Insights

Property Finance covers a wide range of topics, but with one thing in common, whether you are a landlord or a developer, how to achieve the best return on your investment.

Property started to replace savings some years ago as property prices soared in many areas and folk started to think of any capital tied up in bricks and mortar as their pension pot.

Popular property development programmes trumpeting the benefits of buying properties at auction to spruce up and rent out have led to a whole generation of small time landlords and property investors.

Recent tax changes have made the idea less attractive than hitherto for the “amateur” landlord or investor but rental property remains in high demand and still provides a good return on investment.

Commercial landlords and those with large portfolios will be aware of the MEES regulations and how they may impinge on their ability to enter into new leases if their rental properties are not compliant.

The MEES or Minimum Energy Efficiency Standards, were made stricter from April this year and mean that landlords of privately rented domestic and non-domestic property in England or Wales must ensure that their properties reach at least an Energy Performance Certificate (EPC) rating of E before granting a new tenancy to new or existing tenants.

These requirements will then apply to all private rented properties in England and Wales – even where there has been no change in tenancy arrangements – from 1 April 2020 for domestic properties, and from 1 April 2023 for non-domestic properties.

If any properties have not been previously assessed it is important to have them assessed so that any necessary works to upgrade the properties can be undertaken. There is considerable debate as to whether landlords undertaking improvements to their properties to ensure compliance should qualify for tax relief, but as yet it is still only actual construction that benefits.

However despite the costs that improvements may occur properties will have been made more desirable and easier to rent at a higher figure.

Investors looking to purchase properties to rent should approach lenders which offer Buy-to Let mortgages or approach a commercial lender via a broker specialising in property finance who will guide investors new to the sector through the many variants of property finance available.

Property investors with a number of rental properties, may choose portfolio finance, which is a long term business loan offering the ability to consolidate borrowing into one loan. Serviceability of this loan is based on rental income.

For commercial properties, commercial mortgages are available for most types of businesses from sole traders to limited companies. Lenders will normally fund up to 75% of purchase costs with terms of up to 30 years. Typically they’ll secure the mortgage against a first charge and affordability is based on the profitability of your business, and its ability to make the monthly payments.

In the case of a developer looking for finance to build, and who has successfully navigated the twin hurdles of finding a site and gaining planning permission there are a number of specialist lenders.

Property development finance is usually in the form of a short-term loan that’s used for the development of a new building project, or refurbishment of an existing property.

Lenders will look to advance up to 70% of the gross development value, and terms can be up to 24 months. Development finance can often be accessed on a stage payment basis, meaning that funds are released at predetermined stages in the development, this option is usually favoured by self-builders and small developers. The lender prefers the lower risk, and the borrower is grateful to be paying interest only on the funds that have been released.

Many of us will be familiar with the principle of bridging finance which does “just what it says on the tin” and is a short-term finance solution often favoured by property developers and investors, which provides a quick way to finance the purchase of a property. The lender will take a first charge on your property, and will seek an exit once the loan has come to term.

Property is a hot topic at the moment, with news items on the lack of growth in the construction market figuring daily, but when it comes to financing any aspect of property improvement or development lenders have the funds ready and waiting.