These days, 100% mortgages are much less common, although it is possible to purchase a property even if you don't have a deposit.
Here we'll explain some of the potential options to buy a development property with no deposit, and what the pros and cons are to each.
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 firstname.lastname@example.org and the Revolution Brokers team will be happy to help.
Can I 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.
However, you should think about:
- 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 need to be absolutely sure that you will be able to repay that debt.
Lenders considering a remortgage application will also need to go through the usual affordability and eligibility checks.
If you are a landlord or property investor, you can also remortgage or take out a secured loan against other portfolio properties to raise the capital you need.
How does Additional Security Improve my Development Finance Prospects?
Lots of development finance lenders do offer 100% borrowing, but they will need some security in lieu of a deposit to mitigate the risk of this level of lending.
Offering security against another property can significantly reduce that risk level.
How Does Joint Venture Development Finance Work?
This option is lucrative for new property developers - in essence, the lender provides 100% of the investment you need, and in return, you share the profits with them.
Joint investors don't need to be lenders - they can be other developers, investment firms or different types of business.
How Does the Property Market Value Impact my Development?
If you find a property being sold at less than market value, you have more options when it comes to development finance. A lender may be willing to consider the open market value of the property, 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.
How Do Short Leasehold Properties Work in Property Development?
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 that properties are regularly sold with a short lease period since the owner cannot afford the high cost of extending the lease.
Developers can snag a bargain by purchasing a low-cost property at significantly below market value. If they then extend the lease, the property instantly becomes much more valuable and can hold equity even on a 100% debt-financed investment.