Developing property in the UK can be a profitable venture. However, despite the potentially substantial financial rewards, you must first understand how to meet lender criteria, if you are borrowing money to complete your build.
In this article, discover:
- The key factors lenders assess
- How investors can improve their chances of approval
Track record and experience
Lenders much prefer developers with a proven history of successful development projects because it reduces some of the risk of lending to you. If you have this experience, that’s great!
However, first-time developers can still secure finance by working with experienced partners on projects and conducting thorough business plans.
The development proposal
Your development proposal is everything. Leave no stone unturned here; create a realistic development plan complete with timelines, planning permission status, and costs. As well as being detailed, it should also be clear for the benefit of the reader.
It is especially valuable to include market analysis, as this shows your thoroughness of planning. You should also include your exit strategy (how you plan on repaying the loan).
Financial strength and contribution
Showing your financial strength is key to acquiring property development finance.
Lenders expect investors to put some their own capital towards the project (deposits are typically 30%-45% of the site or land the development will be built on).
It also helps to have a good credit history, as this indicates to lenders that you are reliable financially. Showing you have access to contingency funding is also beneficial, as it means the project can keep moving forward in times of setbacks.
Knowing what to expect from loan-to-value for development finance is important; many factors influence this metric, including the developer’s experience, project type, location, and how much of the lender’s own capital is invested in the project.
The team behind the project
Investors want to know there’s a good team behind the project, which typically involves:
- An architect
- Builders
- A project manager
It’s important, then, to demonstrate you have assembled a professional, experienced, and reputable team. That way, the lender is more at ease regarding the safety and development of the project.
Planning and legal considerations
Planning permission is a critical part of a ground-up build. Some lenders will require it to be in place at application, others will accept it being in place by completion of a development finance deal.
There are some important legal factors to iron out before funds are released. For example, due diligence on the property title, contracts, and local authority compliance are all essential and things the lender will require.
In summary
If you want to secure finance for a property development project, you must prove to lenders that your project offers a clear path to repayment of the loan. To strengthen your finance application, focus on:
Securing planning permission in line with lender criteria.
- A strong development proposal.
- Proving your financial strength.
- Showing you have a strong team.
