Property Development Tips – Home Building Loan Considerations

Whether you are building a brand new home or refurbishing and renovating an older one, financing the project can be a difficult challenge. So what are the main things to be thinking about when organizing your home building loan or mortgage?Before you startLenders will need to consider the risk of giving you money, they will need to understand what income and what outgoings you have in order to determine your ability to pay back the loan. They will want to know about your credit history as well as your present situation.Sometimes it isn’t just a case of needing a mortgage to build outright. It could be that you need to live in your existing home and take on a loan secured against that property, using spare equity. This up front finance can then be used to fund the new build or refurbishment. Re-cooping or consolidating the value when you sell the first property.The landThe plot may be clear to build or it may have an existing structure. Depending on the state of an existing building and whether it has to be utilized or not, it is sometimes more cost effective to demolish and build from scratch. This is partly due to labour costs in readjusting the fabric of the building and partly to do with bringing the original part up to current building regulation standard.Some lenders will advance up to 95% of the value or the purchase price, whichever it the lowest. They will also want to know that the local authority has granted planning permission for the project before releasing the funds.The construction or refurbishmentIf you are using a mortgage for funding you will probably need one that facilitates staged payments, released at appropriate milestones. Alternatively you may be using a secured loan against your existing home or the plot if you already own it. A home improvement loan is simple for a straight forward refurbishment.How much could you borrow ? Again this will depend on your circumstances, however the parameters are changing all the time. As getting started is so expensive, some lenders are offering plans that would have been unthinkable only 6 months ago.
Typicaly though a rule of thumb would be 2.5 x the joint income, 3 times the highest and 1 times the lowest. For single borrowers 3-4 times income.VATVAT is recoverable on a new build and partly on a refurbishment if it creates a new dwelling. In both cases it needs to be for your occupancy and not just for resale or rent. It is not recoverable for extensions or refurbishment. Approved alterations to listed buildings can be zero rated by the contractor but not repair or maintenance work. Contact the local VAT office for up to date information and guidance.SummaryFormulate a simple project plan and build in the salient facts, such as, new build or refurbishment. Doing this will help point you in the right direction when making your financial choices. A staged payment mortgage if you have no other property, or maybe a secured home building loan. There are literally hundreds of lenders offering secured loans uk wide, so a specialist consolidator may help when you compare secured loans.