A guide to starting out in property development by Mike Collins Mortgage Broker

Financial advisor Mike Collins explains the main pointers when it comes to getting started in property development

So you‘ve watched Homes under the Hammer and you think, yeah I could have a go at that.

It certainly looks easy in those auction rooms, sticking your hand up and then in half an hour a house has turned from a damp squib into a fairly reasonable two-up, two-down in Dudley.

There’s more to it – but here a few pointers to get you going!

Choosing the right location

If you’ve got your mind on being a landlord, you’re looking for a buy-to-let mortgage.

And the most important factor is getting the area for your property right.

You must do your research on an everything locally – what could put tenants off, what is around the area to do, how expensive is the council tax…

Obviously buying in the most expensive part of town is going to set you back a lot of budget but sometimes it won’t be appropriate for what you need.

Look at potential properties with an eye on the local amenities such as a local shop that you could walk to, a school not too far away, perhaps a post office or places to eat at or buy a sandwich from. Where is the nearest bus, tram or train?

Fringe areas of popular towns are always a good shout as people tend to look there when they can’t afford the prices of pricey areas.

Young professionals will want to get to cities easily, whilst some people want to be within touching distance of a motorway or main road.

Picking the right finance

It’s always worth seeking advice from a finance advisor as they’ll have dealt with very similar scenarios to your own.

Luckily, there are lots of different funding options to finance your property development, obviously dependant on the size and length of your project, as well as the property you plan to buy or refurbish.

If you’re planning on being a landlord, you need a buy-to-let mortgage. This could mean you need a HMO (houses in multiple occupation) where each room in the house would have a separate lock.

If you’re planning to do up an existing property, you may only need a light refurbishment loan. Commercial mortgages are needed when a business is being run on the property but rates for these currently are very high.

You may find a bridging loan is a great option to ‘bridge’ a gap between finance becoming available.

Check out the best products

Many lenders chose to pull products when interest rates went up as the current market is in turmoil.

The Bank of England recently raised interest rates by 0.75 percentage points – a level not seen since 2008, as the UK battles with soaring inflation.

It’s the 8th consecutive rise since December 2021. Less than a year ago, the base rate was just 0.1%.

Depending on what you plan to do with the property will change what kind of product you need.

Buy-to-let mortgages are required for individuals who want to purchase or refinance property that they will let out as a long-term investment. That means it will generate income.

Short-term funding is more appropriate for people who want to flip a property – or develop it and resell for a profit.  Rare usually more expensive that buy-to-let options.

More considerations

Be sure you have a solid time frame as some lenders will charge you more if your project spreads over the loan term that was agreed.

Some lenders only operate through brokers, some of whom can achieve cheaper deals. It’s always worth tracking down a specialist for a chat but make sure they have good reviews.

The best thing you can show lenders is that you have a good exit strategy that you can demonstrate. Make sure you can prove that similar properties are selling at the expected price or that if you plan to keep it, you can definitely get a buy-to-let mortgage when your project is finished.

You should always seek advice from an independent mortgage adviser before you agree to a financial commitment.