Becoming a Property Developer without a Deposit

The Revolution guide to starting your first property development project and securing competitive financing – and what happens if you don’t have a deposit to put down!

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Becoming a Property Developer without a Deposit

These days, 100% mortgages are much less common, although it is possible to purchase a property even if you don't have a deposit.

Most lenders will require a minimum deposit as a standard term of borrowing. However, if you don't have a deposit, there are options, which are usually only available through an experienced broker, who will negotiate directly with lenders on your behalf!

Here we'll explain some of the potential options to buy a development property with no deposit and the pros and cons of each.

Choosing to invest in property development without a deposit isn't always easy, but with the right advice and support, there are ways to find lending to support your development aspirations.

If you require independent advice about investing in a development property - even if you don't have a deposit - give us a call on 0330 304 3040 or email info@revolutionbrokers.co.uk, and the mortgage advisors team will be happy to help.

Can a Development Finance Broker Help Me Invest in a Development Property by Releasing Equity from my Home?

You can, and this is an excellent option if you have significant equity in your property but no cash savings.

A remortgage or secured loan is usually low cost and can quickly raise finances to invest in a new development.

Remortgaging typically only takes a few weeks, and you'll be able to borrow the funds you need to invest in your development project with a relatively low-interest cost compared to any other kind of unsecured borrowing!

However, it would help if you thought about:

  • In the worst-case scenario, if the development doesn't sell for a profit, you'll still have a loan to repay that is secured against your home.
  • You are financing the development entirely through borrowing, so you need to be sure that you will repay that debt.

Any financing secured against your residence comes with a risk that something won't go to plan. That means you'll still owe the same repayments against your home because the loan isn't linked to the development and won't change if the project falls through.

Lenders considering a remortgage application will also need to go through the usual affordability and eligibility checks.

Suppose you are a landlord or property investor. In that case, you can also remortgage or take out a secured loan against other portfolio properties to raise the capital you need, so equity financing for a property development doesn't exclusively have to be against your private residential home.

However, the same risks apply, so you must seek independent professional advice before leveraging a property asset as security against a new development.

Does Additional Security Improve my Development Finance for first-Time Developers Prospects?

Lots of development finance lenders offer 100% borrowing, but they will need some security in place of a deposit to mitigate the risk of this level of lending.

Offering security against another property can significantly reduce that risk level.

For example, if you have another asset or property you can use as security against borrowing, you'll have a much stronger chance of approval and a more comprehensive number of lenders to choose from.

Different types of security hold different weightings, but any property will need to have sufficient equity to act as security.

How Does Joint Venture Development Finance Work for Development Finance Interest Rates?

This option is lucrative for new property developers - in essence, the lender provides 100% of the investment you need, and you share the profits with them in return.

Joint investors don't need to be lenders - they can be other developers, investment firms or different types of business.

Ventures of this nature are best organised through an experienced broker since negotiating the rates and ownership proportions is vital to ensuring your development is viable and profitable!

However, it can be an attractive way for innovative developers to proceed with a project concept if they don't have the financial means to get started without investment support.

How Does the Property Market Value Calculated by Development Finance Lenders Impact my Development?

If you find a property being sold at less than market value, you have more options for development finance.

A lender may be willing to consider the property's open market value rather than what you paid for it - and therefore offer a higher maximum loan value and potentially more competitive rates.

You can also, therefore, buy a property without a deposit.

Say you are purchasing a home at 70% or less of the market value, the loan would likewise be 70% of market value, and therefore a less risky proposition for a lender.

Not all lenders will consider market value when calculating what they're able to end. Still, this option is ideal when you don't have a deposit but know you own a development asset that is already worth more than the amount you've paid.

How Do Short Leasehold Properties Work in Property Development, and What Are the Development Finance Rates?

Our final option to buy a development property without a deposit is to look at properties with very short leases.

When the lease expires, the ownership returns to the freeholder - and the cost of extending a lease increases the shorter the lease term.

That means properties are regularly sold with a short lease period since the owner cannot afford the high cost of extending the lease.

You can often find short leasehold properties available at significantly reduced costs since the seller will typically be looking for a fast sale, given that the property won't have a long-term leasehold period available.

Developers can snag a bargain by purchasing a low-cost property at significantly below market value. If they extend the lease, the property instantly becomes much more valuable and can hold equity even on a 100% debt-financed investment.

However, you'll need to assess the cost of extending the lease and factor that into your plans to ensure the development project you have in mind remains profitable.

Is a Development Finance Calculator a Useful Tool?

Development finance calculators are helpful in that they'll give you a rough idea about:

  • How much you could borrow
  • What your monthly repayments would be
  • Whether you're likely to be approved

However, there is a big caveat in that any mortgage calculator is only indicative. They can't assess your circumstances or check whether you'd be eligible for the development finance product you're considering.

For example, rates shown might be based on averages, but the lender might offer a much higher rate if they consider the project risky or you fall outside of their standard lending criteria.

Other development finance lenders won't consider any applicant without a cash deposit, so it's a niche form of development borrowing that requires professional support.

The best way to evaluate the interest rates and terms available on short-term development financing is to contact a professional, independent broker such as the Revolution team.

With years of experience in the development finance lending market, we can assess your project and provide recommendations from everything to crafting your application, submitting your budget estimates, and selecting the most appropriate lender to apply to.

For more information about ways to secure development financing without a deposit, please give our friendly team a call on 0330 304 3040, or drop us an email at info@revolutionbrokers.co.uk to arrange a good time to talk.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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