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How To Successfully Get A Development Loan Application Approved

How To Successfully Get A Development Loan Application Approved

by | Nov 16, 2021 | Advice

As lenders, we see a lot of deals. However not all proposals are presented to us with the full package of information, and this can often lead to delays.   It is very important for us to do as much up-front groundwork as is possible. Personally, I am not keen to present a deal through my credit committee with too many gaps as these may not be able to be filled in later or the answers prove unsatisfactory meaning the deal may get withdrawn much later in the process which is not good for anyone.

So what information is required to successfully get a deal approved? Much of this will be obvious, but it doesn’t hurt to spell it out. I have split these between the scheme and the borrower.  Firstly,  the development itself, the following should be provided:

  1. Financial Appraisal – This should be up to date and as detailed as possible.  It should ideally contain a full GDV breakdown on a unit-by-unit basis. It should also be the latest version as appraisals of course evolve.  It’s also important to keep your funder updated of any changes as they occur
  2. Valuation Evidence – This can take the form of agents providing pricing for the developer, or a previous valuation maybe undertaken for a different lender.  However, an appraisal without such back up information is not ideal
  3. Plans and Planning Consent – It is very helpful for the lender to provide a copy of the planning permission (if granted of course) and the correct plans.  Quite often there have been changes and the plans provided either don’t tie up with the appraisal or the consent.  This may cause delays. Lenders will always want to visit the site and so as much information that can be provided ahead of any site meeting is very useful. Planning Permission will have preconditions and if as a lender we know what these are then we can make sure they are covered in the appraisal
  4. Contractors – If the development is going to have a third-party contractor, then information on them including accounts is most helpful fully appreciating that this is often one area where decisions have not been finalised

In terms of the borrower then the following should be provided

  1. Full CV and details of previous developments – These should include previous lenders used by the developer. It doesn’t need to be great detail but enough to give the lender a feel for the experience of the developer.  If there are any photographs or brochures of completed schemes, then these are always gratefully received
  2. Financial Information – These will take the form of accounts in the case of Corporates and statements of personal assets and liabilities for directors. This is often the area that can be the most contentious but for a lender is key.  Again, as much information as is possible here as early into the process saves time later

Of course, we all understand that not everything here is going to be provided immediately, particularly personal financial information but the borrower needs to be prepared to provide this as soon as it is requested, so having it ready is going to help everyone

It is also really important, to be honest.  So, if there is some adverse credit in the past, or ongoing CCJ’s then please tell us.  Most of the time we can deal with these but if we find out later (and we will!) and this hadn’t been disclosed then there is a likelihood the deal may end there and then.

All the above is information readily available to the developer, and as early and detailed, that this can be provided the quicker the transaction can be approved.

Perry Kurash, Head of New Business, BLG Development Finance 

Playing Whack-a-Mole With Development Cost Increases

Playing Whack-a-Mole With Development Cost Increases

by | Nov 4, 2021 | Latest News

There has been a leitmotiv recently about costs increasing in the construction industry.  We have seen evidence of this with our borrowers, but regional variations for some materials and labour force availability make it difficult at this stage to discern a simple or obvious narrative or even an overall clear percentage increase.  Some costs seem to be linked to short-term supply chain issues that get resolved over a reasonably short period of time whereas others are linked to more fundamental global shortcomings which will take a while to wash through.  The only pattern at this point is that costs are increasing!

Slightly less visible or discussed increases in other costs such as insurances and warranties.  We have seen these increase at significant levels which is catching some developers unaware and leaving them scrambling to look for cheaper alternatives or cashflow to meet them as they arise.

Where we see our borrowers doing best at controlling costs is those that anticipate and plan well ahead.  The ability to secure supply and lock in costs or shopping around for the best price seems to be really helping.  This requires time and access to cash flow – an area where we can sometimes help with the right preparation and information.

Right now, the residential development market is slightly protected by house prices that keep nudging upwards and continued demand for new housing stock.  The risk of interest rate rises may dampen this slightly and it remains the case that looking at every aspect of the cost stack will help to protect margins.

Get those night-vision goggles on and plan ahead!

 

Cecile Verroest, Risk Director, BLG Development Finance

The Benefits Of Build To Let Development Finance

The Benefits Of Build To Let Development Finance

by | Jun 15, 2021 | Advice, Latest News

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.

Mortgage Borrowing At The Highest It Has Ever Been

Mortgage Borrowing At The Highest It Has Ever Been

by | May 21, 2021 | Latest News, Advice, COVID-19

Recent news that mortgage borrowing has reached an all-time high is great news for developers and those looking to sell their homes or other properties. The record high shows that more people are moving home and suggests a shift away from renting towards buying. There are many reasons for this change including the extended stamp duty holiday, but the impact that this will have on the housing market in months to come is still being assessed.
In March 2021, according to the Bank of England, the population borrowed £11.8 billion more on mortgages than they repaid, with a gross mortgage borrowing of £35.6 billion. This has put net borrowing at its monthly highest since the start of recording comparable modern data in 1993. The current low Bank of England interest rates directly resulted in low mortgage rates, making borrowing and mortgages even more popular.

Eighty-three thousand new mortgages were approved in March, which is up from 73,000 mortgage loans approved in February 2020, at the start of the Coronavirus pandemic and first national lockdown, showing an increase in those looking to move home

During this time, the production and manufacturing industries including those focused on building new commercial and residential properties have continued to steadily grow for the eleventh month in a row. This suggests that the new properties looking to go on the market in the coming months are going to be met with huge demand which in turn raises prices.

A Market Boom

Due to the increase in borrowing, property prices are also on the increase, with Nationwide Building Society announcing an average price increase of almost £16,000 for the year ending April. This puts the average house price at nearly £240,000 and is expected to continue rising this year.

Economists believe that the market boom is mainly being fuelled by high-income groups, whose jobs were not affected by the pandemic. This also suggests an increased demand for higher-end homes, more complex and unique builds, or investment properties as this is unlikely to be the first home of someone within this group.

The Stamp Duty Break Extended Until June

The stamp duty holiday, which has been repeatedly extended during the period of the pandemic, continues to see homebuyers rushing to take advantage of it before it expires. The stamp duty holiday was extended until June 30th, 2021, and the buyers demand does not seem to slowing.

The tax rate will increase through July, August, and September, ending on September 30th, 2021. The stamp duty will then return to normal pre-COVID-19 levels on October 1st, 2021. Due to this it is expected that the housing market will slow during these months in comparison which could in turn cause a drop in prices but the long-term impact of this is still being monitored with much debate surround the ‘post covid’ housing market.

If you are looking to complete your build please get in touch with BLG to see how our finance options can help.

Who Is Eligible For Build To Let Development Finance

Who Is Eligible For Build To Let Development Finance

by | May 21, 2021 | Latest News, Advice, COVID-19

Whether you’re a first-time investor or an experienced property developer, delving into the lucrative rental market often requires financial support. The build to let finance option provides a tailored solution for those seeking long-term returns through rental properties.

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.

To fund the project during the build phase, investors and developers often turn to build to let development finance, transitioning to a standard buy to let product upon completion.

Eligibility

When considering build to let finance, adherence to specific eligibility criteria becomes paramount. Lenders meticulously evaluate various factors to ensure the viability and success of the project. 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. Here’s a detailed exploration of the key eligibility criteria:

Strong Exit Strategy: A fundamental requirement for accessing build to let finance is the demonstration of a robust exit strategy. This often takes the form of a pre-approved buy to let mortgage. This strategic plan outlines how the investor or developer intends to transition from the initial funding phase to a standard buy to let product upon project completion.

Track Record and Experience: Investors and developers with a proven track record in the sector and a history of successful developments enhance their eligibility. Previous experience in navigating the intricacies of property development is a valuable asset, instilling confidence in lenders regarding the project’s potential for success.

Comprehensive Business Plan: The submission of a well-structured business plan is a critical component of eligibility. This plan should go beyond a mere overview, delving into key metrics such as occupancy forecasts and rental projections. A comprehensive business plan not only outlines the project’s financial viability but also showcases the investor or developer’s strategic vision.

Creditworthiness: While good credit is generally preferred, lenders understand that certain circumstances may lead to less-than-perfect credit histories. In such cases, eligibility is still possible, provided the poor credit does not pose a significant threat to the exit strategy. Lenders may assess the overall financial health and stability of the applicant.

Security and Deposit: Offering good security and a deposit higher than the minimum requirement are viewed as indicators of lower risk. A higher deposit showcases the applicant’s commitment and financial stability, strengthening eligibility. Security, in the form of collateral or assets, provides assurance to lenders and mitigates potential risks associated with the financing.

Understanding and fulfilling these eligibility criteria not only increases the likelihood of securing build to let finance but also sets the stage for a successful and sustainable project in the competitive property market. Aspiring investors and developers are encouraged to work closely with financial experts and advisors to navigate the intricacies of the application process and optimise their eligibility for build to let finance.

Strengthening Your Position

There are strategic avenues for those seeking to fortify their eligibility or address capital shortfalls. Here, we delve into alternative options designed to strengthen your financial position:

Bridging Loans: Bridging loans serve as invaluable short-term solutions, especially when some capital is available but falls short of the project’s requirements. These loans provide the flexibility to swiftly acquire a portion of the site, facilitating progress while the investor or developer works towards securing additional funding. Bridging loans act as a financial bridge, enabling seamless movement from one phase of the project to the next.

Equity Release: A strategic approach involves tapping into the equity within your existing investment portfolio. By remortgaging properties, investors and developers can unlock additional funds to bolster their financial capacity. Equity release allows for the efficient utilisation of existing assets to secure the necessary resources for the build to let project. This option leverages the accrued value of your properties, providing a dynamic source of financing.

Unsecured Business Loans: For those seeking a supplementary financial boost of up to £25,000, unsecured business loans present a viable solution. These loans, not backed by specific collateral, offer flexibility and a streamlined application process. While the loan amount may be relatively smaller compared to other financing options, unsecured business loans serve as a convenient top-up, filling gaps in capital and supporting various project-related expenses.

Considering these alternative options allows investors and developers to adapt to the ever-evolving financial landscape of property development. Each avenue offers a distinct set of advantages, catering to specific needs and circumstances. It is crucial to carefully assess your financial requirements, risk tolerance, and overall project goals when determining which alternative option aligns best with your unique situation.

Collaborating with financial experts and advisors is advisable to navigate the nuances of each alternative, ensuring informed decision-making. By strategically utilising bridging loans, equity release, or unsecured business loans, you can fortify your financial position, enhancing your ability to embark on successful build to let projects with confidence and resilience.

Important Considerations

Before embarking on a buy to let project, it’s crucial to be aware of key factors, such as potential challenges in finding buyers, higher interest rates for short-term finance, and the time it might take for rental incomes to materialise.

For tailored advice and information on build to let finance, landlords and property developers are encouraged to reach out to the experienced team at BLG. Their expertise can guide you through the intricacies of financing, ensuring your project’s success in the competitive rental market. For more information on build to let finance for landlords and residential property developers, please contact the BLG team.

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