There are 5 main types of lending for property transactions:
1 - Mortgages
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These come in either residential, or Buy to Let.
Residential is for when you’re buying your own home that you’re going to live in.
Buy to let is when you’re buying a property to rent out.
Typical rate: 2-5%.
2 - Bridging
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Designed to be quick to get and for the shorter term.
It’s usually used as a stop gap before getting longer term and cheaper finance, for example, buying a property at auction. So rather expensive, but you’re paying for the convenience and the speed.
Typical Rate: about 1% per month.
3 - Development Finance
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Development finance is similar to bridging, except you’re given a total facility and you draw down as and when you need it. So it typically tends to be used for build costs. This makes it a bit cheaper because you only pay for the money when you use it.
Typical Rate: 0.5% and 1% per month.
4. Angel Lending or Private Debt Finance
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This funding comes from individuals, sometimes friends and family, and it is lending for a fixed rate of return. Once agreed it’s pretty quick to set up and draw down on. Costs can range anywhere between 6% and 15%.
5. Joint Venture Finance
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As with Angels, this will often come from individuals, but instead of a fixed rate of return, they will take an equity stake in the project, so their return is directly dependent on the success of the project.
It will either be a proportion of the rental profits, or a proportion of the increase in value when you sell the property.
Typical Rate: Equity Stake in the Project
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