First-time investors and experienced property developers continue to look to capitalise on the growing rental market. The rental market offers long-term returns, generating a reliable income stream. However, rarely does the investor or developer have all of the funds for the project. If this sounds like your situation, then build to let finance could be the solution you need.
Build to let finance is designed specifically for the private rental sector. Most often, the premises have communal spaces for tenants and on-site maintenance teams. The investor or property developer will not be looking to sell for a quick profit but rather intend to rent the properties for long-term returns.
The build to let development finance is used to fund the project during the build phase. Once the build is completed, the investor or developer will exit onto a standard buy to let product. Where five to ten apartments exist in a building, a single standard buy-to-let mortgage is typically available. When there are more than ten apartments and additional facilities, such as an on-site gym, then a specialist commercial buy to let product will be called for.
Of course, there are lending criteria to meet to access build to let finance. Here we take a look at who is eligible for build to let finance.
The Lending Criteria
The lending criteria for build to let funding is evidence of a strong exit strategy, which is typically a buy to let mortgage that is agreed in principle. Build to let development finance lenders will also be looking for:
- A strong track record in the sector and previous development experience
- A strong business plan outlining key metrics such as occupancy forecasts and rental projections
- Good credit, although poor credit can be acceptable if it does not threaten the exit strategy
- Good security and a deposit higher than the minimum, which lenders see as evidence of lower risk
If you need to strengthen your position to meet the lending criteria or do not have enough capital, you could consider:
- Bridging loans – These are short-term solutions that can be leveraged to purchase part of the site if you have some capital available
- Equity release.- You can remortgage properties in your investment portfolio to release investment funds
- Unsecured business loans – A top-up solution for borrowing up to £25,000
If you intend to finance a buy to let project, you should be aware of specific crucial facts. Firstly, it may be challenging to find a buyer should you ever decide to sell the property. Short-term finance often has higher interest rates. Lastly, it may take time for rental incomes to come through, extending the time it will take to recoup your investment.