Anyone looking for property development loans in the current climate might seem to be in cloud cuckoo land. You can’t travel far in any area of the UK without coming across an abandoned or mothballed development project.
However, the fact is that in most parts of the country there is still a need for new homes and other types of development. The projects that have failed are the ones which started off with unrealistic expectations – fuelled by the lending bonanza – and failed to research the market.
Of course, providers of property development loans are now going to be much more cautious about who they lend to. So if you are hoping to embark on a project, how do you stand the best chance of getting your hands on the finance?
• The lenders who still remain in the market actually need borrowers in order to stay in business. So they are going to be on the lookout for promising projects. It is going to be up to you to convince a lender that your project is viable in terms of location, housing type, scheme size and profitability. Rather than dream up a project and hope there will be a market for it, which is what the failed projects littering the country did, you need to find a place where there is an existing demand and tailor your project to this market. If you can show your lender that you have done this, it will be in their interests to finance you.
• Lenders of property development loans have always been wary of inexperience and are even more so in the current climate. If you’re a newcomer to property development, go into partnership with someone who has a track record. Not only will it help you to get the finance but it will make it easier for you in all sorts of ways as the project progresses.
• A lender is most unlikely to finance a project without detailed planning permission for the specific use the project is intended for – residential, retail, hotel etc. The lender may agree to finance the project with outline planning permission as long as there don’t seem to be obvious obstacles in the way of detailed planning consent. If you are developing a brownfield site, planning permission is easier to get, but you need to have checked the site thoroughly.
• In the present climate, property development loans are much easier to obtain with pre-sales. If you are supplying an existing demand, as you should be, pre-sales shouldn’t be all that difficult to get. Not only will this make the lender more ready to lend to you but it should help you get a higher loan-to-project ratio. Be aggressive in marketing your properties – lenders will be impressed with innovative sales methods.
The current situation may not be encouraging but don’t give up. Never forget that lenders need projects as much as projects need lenders – but they aren’t going to take risks. As well as having the right project, make sure you have impeccable credit and the funds for a deposit of at least 30 per cent – and don’t forget a commercial mortgage broker can help you find the right lender.