Development Finance Without Proof Of Personal Income
Hi Alan (or Pete),
I’m in the process of renovating 2 barns that once completed will be let out but am running out of funds. I don’t believe they are suitable for a mortgage as they are currently just shells, one is further along than the other but neither are anywhere near habitable. My credit cards are nearing their limits so I need to raise some additional funds. I don’t really want to borrow against my own property as I don’t believe my income will allow for further borrowing against it. Have you got any thoughts?
From your enquiry it sounds like you’re looking for bridging/development finance to complete this renovation. This is normally arranged on a short term basis, up to 12 months and a maximum of 24 months typically. It is there to bridge the gap until you can refinance or sell the properties once the work is complete.
Where a normal mortgage lender needs a property to be habitable before they will release any funds to you, bridging lenders have products specifically designed for these situations, and the property can be pretty much in any state, so long as there is a clear plan to develop it and exit the development loan within a reasonable timeframe.
Typically, these lenders can go to 75% of the current market valuation (so if valued at 100k they’ll lend 75k max), although depending on the nature of the application and things like your credit history etc. this may be less. If you need to borrow more than this, it may be possible for them to take charge over other properties you may own and spread the debt over more than just these two barns. If you do, it may also be worth considering raising the majority / all of the money on these properties as a remortgage or secured loan, as the cost of doing so may be more favourable, but as you say your personal income will need to be assessed then, and if this isn’t deemed affordable you won’t be able to finance in personal name in this way (we can assess this for you).
Development / bridging lenders don’t normally care too much about your personal income, as they look more at the value of the property and the viability of the development you’re planning, to make sure they get their money back when you sell/refinance (exit). As they normally add the interest to the loan when you take it, you won’t need to make any monthly repayments, and thus they don’t need to evidence affordability. Taking the money in this way can also help your cash flow while doing the work.
If you’re not experienced in doing these kinds of developments they’ll likely want to make sure you have contractors in place to do the work, and they may demand a higher deposit. If you have a proven record of doing this before then they’ll be happier to lend without going into as much detail.
Once the properties are completed you can look to remortgage to a normal BTL lender (if renting out) or residential lender (if moving in yourself), or of course sell the properties if you so desire, at which point you repay the loan in full. There are normally no/minimal exit charges to repay the loan before the end of the term, but there will certainly be arrangement fee’s and interest anywhere upwards of 0.5% to 2% per month.
There’s a bit more info on this in our development and short term finance article here. This is something one of the specialists can run through with you, just make an enquiry and we’ll pass you on!
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