Property development is a costly industry to enter. Prices are high, projects are time-consuming, and opportunities are short-lived. While there are many skills that a budding property developer must cultivate, one of the most important is securing a reliable source of finance. Without a reliable method of raising finance, it can be extremely difficult to get a project off the ground, whether it be the construction of a new property from the ground up, or the extension of an existing property.

However, there is a wide variety of methods you can use to raise finance for your project. While this choice can be great for getting the best deal, finding the method most suitable for your project can be challenging. In this article, we will discuss a series of options for raising capital, and how they can be used to fund an extension to your property.

Planning a property extension

Property extensions aren’t an exact science. Each extension is unique in some form, whether it be the need for unique materials, the size of the extension, or a range of other factors. As such, planning your extension thoroughly before taking action is vital.

Unsurprisingly, one of the most important factors to plan your extension around is cost. Each property extension will be priced differently, though there are general price ranges for extension types. A small-scale property extension, such as a small side add-on, is likely to cost no more than £15,000. Larger, more intricate property extensions can well exceed that price, the extent to which is dependent on the specifics of the extension in question. Given the variety of price ranges for property extensions, it’s important to choose the right finance option for your situation.

Also Read: What Is Construction Finance & How Does It Work

Funding an extension to your property

There isn’t a one-size-fits-all solution to funding an extension to your property. Some methods are more suitable to certain situations than others, making it a prudent choice to consider all your options before settling on any one solution. To that end, here is an overview of several commonly used methods of funding an extension.

Unsecured loans

Unsecured loans are quite a versatile method of funding an extension. They are applicable to a wide range of projects, from a small and relatively low-cost extension to a room, to an expensive extension such as a conservatory. Whatever your project, unsecured loans can be the perfect way to fund your extension.

While certainly effective, unsecured loans do have their limitations. Most notably, unsecured loans are often quite restrictive in terms of how much you can borrow. This is because unsecured loans, unlike their counterpart secured loans, do not require collateral as part of the agreement. This increase in risk for the lender tends to limit the amount of capital that can be raised, while also having more stringent requirements for a successful application. Moreover, unsecured loans tend to have additional fees, though exactly what is heavily dependent on your lender. One of the most common additional fees is an early repayment charge, forcing you to spend more on your loan if you plan on repaying it early.

In addition to the restrictions on utility, obtaining an unsecured loan is quite difficult for borrowers with poor credit. It certainly isn’t impossible; having a solid plan for your project or signing a personal guarantee are two ways of obtaining an unsecured loan with bad credit. However, having bad credit will likely mean higher rates, and you may find your choice of loans limited. As such, it may be best to consider another option.

Credit cards

If your extension project is small and relatively cheap, using a credit card may be the ideal solution for you. They are fairly accessible and can be cheap in terms of interest rates, with some credit cards offering 0% rates as part of a promotion. If you can obtain a credit card during this promotion, you can save quite a bit on interest rates when compared to other types of loans.

In addition to potential savings and easy accessibility, credit cards offer borrowers another benefit – Section 75 of the Consumer Credit Act 1974. In short, this section protects you from negligent builders and generally unsatisfying work. If the contractors that worked on your property have provided a sub-par service, you are entitled to a refund in the majority of situations. While this doesn’t necessarily affect your extension project or the cost of the work, being protected from shoddy work is a great benefit indeed.

However, using credit cards isn’t all positive. If you cannot pay back your debt, you will damage your credit rating, making it harder to obtain other loans in the future. Secondly, failing to pay back your debt during the 0% interest rate period will mean you pay your credit card’s standard interest rates based on your situation. This can be quite expensive depending on your particular credit card, defeating one of the main purposes of using a credit card for property extensions.

Remortgaging your existing property

A relatively quick and easy method of raising capital for an extension is remortgaging an existing property, or using your equity in a property as security for a loan. Both methods work quite similarly, in that you leverage the value of your property and the equity you have in it to raise capital. This makes remortgaging a property, or taking out loans like a HELOC, quite simple and straightforward, getting money in your pocket fast.

However, there are some notable downsides to using such methods, the most significant of which is risk. If you leverage your existing property to take out a loan, failing to make repayments can lead to your property being taken as a form of repayment. If your financial situation is insecure, using this method may not be suitable.

Wrapping up

Funding an extension to your property largely comes down to your specific situation, both in terms of your finances and your project itself. There are many methods of funding an extension, far more than we have listed above, each with its pros and cons. To settle on the solution that is best for your situation, it is vital that you do your research and shop around for a good deal. Seeking financial advice from a professional never hurts, either.