Getting loans for property development can be a tedious process. Various lenders evaluate your applications based on set standards which are the basic requirements. Lenders such as Express Capital will give you loans for your property development projects as long as you meet these necessary criteria.
If you are looking to get funds to refurbish, build or renovate any property for either private or commercial purposes, knowing what is required will aid your preparation and decision-making.
Below are the basic criteria required:
Size of the Loan
The amount you require for the development will determine if the lenders would be able to fund the project. Most property development finance lenders can offer £50,000 and even up to £1 billion.
Loan Duration
How long the project is going to take is also considered by the lenders. Most property development loans run from 1 month to 3 years, and some lenders’ terms are amenable for repayment from 12 months to 36 months. This saves you from worrying about incurring early repayment penalties.
Development Type
If you are building a new property, refurbishing, or renovating, the loan structure and the LTV ratio given by the lenders will be different. Depending on how huge the project is, the lenders will draft a suitable loan structure that they agree with.
Feasibility Of The Project
Before applying for a property development loan, you will need to carry out feasibility studies on the project, as the lenders will ask you questions. Some lenders expect a properly-detailed plan that should show the prospective outcome of the project.
Location of the Project
Where the development will be based is a major concern to the lenders. Most of them have preferred places where they can finance property development projects. Some are likely to offer you the loan if they are sure your proposed location will not incur any losses and if they are certain of the value of the overall project.
Developer/ Borrower’s Experience
Your track record or experience as either the borrower or developer will determine if your loan application will be granted. Most lenders will offer loans to only developers with previous experience. However, some more specialized lenders may take the risk.
Security Offered
Lenders will fund your property development project once you can offer acceptable security like apartments or private-owned estates. They believe that the more security you can offer, the lower the risk of the loan. Also, having permission for planning is good security that can convince some lenders.
Loan To Value Percentage of the Gross Development Value
Lenders offer loans based on the projected percentage of the gross development value (GDV) on completion of the project. Some can give a maximum of 70.5% of the GDV, while others can go beyond 76% to 80%.
Credit Rating
Most lenders do not discriminate against borrowers or developers with poor credit ratings or history. However, good credit history gives you a highly competitive edge over other applicants. You can still get a loan as long as you are not in huge debt or have an extremely bad credit history. Having a previous bridging loan can increase the chances of your application being approved.
Relevant Documents and Permits
Getting required documents and planning permit details may be part of some lenders’ requirements. Some may approve without the permits, but you should ensure the activities related to the project during the loan term comply with the building regulations and local planning laws.
The Exit Strategy
The exit strategy is simply how the loan will be repaid. Lenders will want a viable exit strategy before approving the application or giving the funds. The best exit strategy mostly used is remortgaging the property and using the proceeds to repay the loans.
What Do You Need To Consider Before Applying For Property Development Finance?
Some other conditions you may need to consider include:
- Your age: This is considered by some lenders as they may not approve your applications if you are less than 18. Some specialist lenders may choose to consider you if you are below 18 and you meet the basic requirements.
- Your qualifications: Most lenders loan to limited and partnership businesses, coastal companies, and private applicants.
- Additional fees from lenders: Some lenders may charge additional fees like exit, arrangement valuation, and security fees.
Engaging the help of a development finance specialist is another way to get the right information about all you need to know on how to apply and get the loans you need for your property development. With proper and professional assistance, you can determine suitable lenders for the type of property development project you want to venture into.
