In recent years property developers have struggled to access finance to fund their projects because of the high street banks’ continued reluctance to lend to investors. Today however, the situation is slowly changing for the better, particularly with the specialist lenders who continue to widen their finance options to include both refurbishment projects and new build developments.
Refurbishment finance is structured to provide funds in two tranches. The lender will provide an initial advance based on a percentage of the purchase price with the balance released post works and re-inspection. The actual loan amount is based on the projected value of the property post-refurbishment and the anticipated, achievable rental income.
Property development finance is aimed at investors looking to take on comprehensive renovation and new build projects. Options for property development finance are also increasing for both residential and semi-commercial properties in strong locations. Again it is the specialist lenders filling the gap in this under-served market. Borrowers need to be experienced developers and must be able to provide considerable information to the lender including a full appraisal of the development including copies of planning permissions, a breakdown of the build costs, cash flow forecasts for the project and commentary around the exit strategy, as well as the usual financial documents.
The loan amount is based on a percentage of the gross development value at the end of the work, usually 60% loan to value, with a maximum of 60% of the total costs. Loans are normally structured to ensure that developer’s contribution is utilised up front with the lender providing the majority, if not all of the build costs. It is usual for funds to be drawn down in stages against architect’s certificates.