If you are a residential or commercial property developer in the UK, then finding the right finance for your project is essential. While some developers look to build and flip for a profit, other developers and professional landlords look to create a long-term return with regular ongoing revenues generated from letting the property. In this instance, specialist build to let finance is often required.
Failure to choose the right development finance can not only result in running short of the funds to complete the project but reduce the portion of rent that becomes income.
What Is Build To Let?
Build to let development finance is a specialist product that is available for projects that include three or more units. These units may be houses, apartments, and flats, covering new builds, conversions, and refurbishments.
The three main types of built to let finance include:
- Residential finance – can be used for developing flats, student dorms, or a House in Multiple Occupation (HMO)
- Commercial finance – can be used to find the development of offices spaces, rental factory floors, and storage space
- Mixed-use finance – can be used to fund semi-commercial properties, such as partial rentals
The property developer or landlord should have an exit strategy in place. Unlike standard development finance, where the sale is the exit strategy, the build to let exit strategy is dependent on the property being let and generating rental income. Usually, the property developer or investor will move to either a standard or commercial buy-to-let mortgage, depending on the number of units and if there are shared facilities.
The build to let loan is 100% secured on the development property. To secure the funds, planning permission should already be in place. Furthermore, a rental and sales valuation is required.
The Advantage Of Build To Let Property Development Finance
Due to the exit strategy being dependent on renting the properties, standard development finance may not be sufficient in the letting landscape with a loan period of 12 or 18 months. Build to let finance offers the solution developers, and landlords need by offering longer loan terms. This additional time accommodates for the fact that the exit strategy may take longer to materialise.
The core advantages of build to let finance includes:
- Flexible loan terms
- Take on more extensive or multiple projects and increase potential profit
- Lending up to 60%, including interest, open market value, or 75% restricted investment value
- Loans from £1m to £10m
There are few lenders that specialise in build to let finance. If you are looking for build to let property development finance, please contact BLG to find out about our lending criteria, prices, and how we can help you get your project off the ground.