The Most Common Types of Lending Options

The type of loan that you require will depend on what the money will be used for. Not all banks and lenders offer the same products or the same rates. We discuss the different types of lending options.

Residential Mortgage

A residential mortgage is a personal, long-term loan taken out to purchase a property with the intention to use as a personal dwelling. These loans are taken out over a long period of time - sometimes more than 35 years depending on the age and situation of the borrower.

Mainstream banks will issue mortgages to individuals who are able to prove a certain income criterion and the bank will use the property itself as security. Failure to keep up with the terms of the loan will result in the lender forcing the borrower to sell the property to pay the debt.

Buy to Let (BTL)

Similar to residential mortgages, a buy-to-let mortgage is issued to an individual or commercial entity to purchase a property for the sole purpose of renting to tenants. The loan will typically be long term and require a higher deposit than a residential mortgage.

Many borrowers also opt for an interest only setup, whereby only the loan interest is paid each month with the balance of the property due at the end of the loan term. This means landlords can have and earn from their property for the length of their term, and if they wish they can sell the property to pay off the balance and pocket any equity gained from market inflation.

Commercial Owner-Occupied

The commercial owner-occupied mortgage can be taken out by a business, or owner of the business and is used to purchase a premises which the business plans to operate out of. It is a long-term loan which is typically much higher in value than residential mortgages, as premises tend to be larger for business operations.

Commercial owner-occupied mortgages can also be applied for as a refinancing option for existing owned properties if terms are more favourable or as equity release.

Commercial Investment Mortgage

If a commercial entity wishes to buy premises that it will not be operating from as a business, but they wish to let to business tenants, they will opt for a Commercial Investment Mortgage. Like the aforementioned, this loan is typically long-term and has higher interest rates compared to residential or buy-to-let mortgages.

Development Finance

Property development finance is used by commercial entities to buy land and build costs, or simply the latter if land is already owned. Depending on the lender, borrowers can apply for up to 100% of buy and build costs for their commercial or residential property development.

The loan terms of property development funding are usually very clearly defined and tend to be much shorter than typical residential and commercial mortgages. Interest rates are also higher, however as loan terms are shorter, borrowers could potentially pay less interest in this type of investment – depending on completion times.

Loan value will be secured against existing property or assets owned by the company or business owner to the same value or higher than the loan amount.

A big advantage of property development loans is that commercial entities are able to get quick decisions and move ahead with projects much faster than traditional mortgages. More about property development finance here.

Bridging Finance

If a company requires money in the interim before receiving awaited funds from an alternative source, a bridging loan will “bridge” the gap for them. The commercial entity may require a bridging loan to pay off an existing creditor or release money for another purpose before they are able to access longer term funds. Thus a shorter-term infusion can fulfil their immediate capital needs. More about bridging loans here.

Bridging Loans are also often used for activities such as auction finance. Businesses can access their bridging finance for the initial purchase, before securing a longer-term mortgage for the property. Property Development Finance can also be used for this too.

Onyx Property Finance are experts in providing financial solutions for property developers. We are dedicated to keeping on top of market trends and ensuring our customers are kept informed of any changes that might affect their borrowing, projects and investments – see our blog for all the latest insights.

Speak to an expert today and get up to 100% of your purchase and build costs with fixed interest rates for the lifetime of your loan: info@onyxmoney.co.uk.