Building Finance For UK House Builders
If you are a UK house builder in need of financing for your new development, there are numerous options available to you. This article will focus on development finance, which is an adaptable option that can be used for buying land and covering construction costs.
As part of the Government’s Leveling Up Home Building initiative, the Homes and Communities Agency has created a £3 billion fund for small home builders, custom builders and developers to construct 25,000 new homes by 2020.
Development Finance
Development finance can be utilized by UK house builders to purchase land and finance the construction of new builds, conversions or refurbishments. Unlike long-term property mortgages, development loans have a shorter term of six to 24 months and typically provide coverage.
Development loans can be repaid through the sale of completed properties or refinancing onto a longer-term loan facility. This option may prove more profitable for developers since they retain any profits from sales or refinancing until all debt has been cleared.
Development finance can be a challenging form of building finance to secure for some smaller UK house builders. But thanks to the rise of alternative lenders, securing the right size and flexible loan is now simpler than ever before.
Construction Loans
Constructing new homes or renovating existing properties can be a costly endeavor. You must pay for land, planning, materials and labor up front – an amount which could easily exceed £100,000.
Construction loans can be used to cover the initial costs of a property development project. They enable UK house builders and businesses to purchase land, materials, and labour needed for building a new home or redeveloping an existing one.
These loans often feature a drawdown schedule, in which the lender releases money over an agreed-upon period of time. For instance, 10% of funds may be released when site clearance and foundation pouring has taken place.
Construction loans are an ideal financing option for UK house builders to cover the initial costs of a property development project. Unfortunately, they can be hard to acquire and must be applied for with a lender that specializes in this type of lending.
Commercial Loans
UK house builders who require extra funding for a project may find commercial loans an invaluable resource. These loans enable them to keep building, purchase equipment, pay for materials and settle wage invoices.
As with many types of loans, lenders typically assess a person’s creditworthiness. They need to be certain that the business will be able to repay the mortgage in full.
Commercial loans typically require higher minimum credit scores and down payments than personal loans do, so applicants must demonstrate they have enough income to cover the mortgage payments.
Lenders often reluct to loan money to seniors due to the potential difficulty of meeting repayment obligations. Furthermore, mortgage insurance is typically not offered with commercial loans, leaving self-employed workers and freelancers at a disadvantage. Nonetheless, self-employed workers and freelancers may still qualify for a commercial loan by demonstrating an impressive business history and providing documentation demonstrating adequate cash flow.
Asset Finance
Asset financing is an ideal way to spread the cost of purchasing equipment, vehicles and machinery over time. It can help free up working capital or provide essential items that your business cannot afford upfront.
It allows you to keep your current credit lines intact and avoid interest rate fluctuations. It’s a flexible funding option suitable for registered companies and contractors as well as sole traders and new start-ups.
Asset financing consists of two primary forms – lease agreements and loans secured against assets. Both provide UK house builders with financial flexibility by increasing short-term funding and working capital requirements.