If you are a property developer that has completed a project that was intended to be retained as a buy to let investment, you may have found that that your development financier now wants out pretty quickly. You are, we are afraid, not alone here. A great deal of development finance, came from the major Banks or their subsidiaries, and we also know that one of the major players was a certain large Bank, headed up by a “Sir” Fred, who now need as much money back as possible.
As you know, development lending is never set up on a long term basis, so in fact all the lenders want their money back pronto once the project is finished. Most lenders were looking to lend for no more than 2 years, at the outside. When many developers loans were taken out, if sale was not achieved or indeed not part of the plan, re-finance was easy by way of a Buy to Let re-mortgage. Now that the market has changed it has left many developers are with a real dilemma over what to do with their completed projects. Do they sell at a distressed low value, which was never the intention, or do they let the banks foreclose with the normal consequences.
We are taking calls from many experienced small/medium developers that are on the verge of giving up any hope, due to the difficulty in being able to find a lender that will “take over” a development loan once the project is finished. We know that commercial lenders simply do not view property development as attractive anymore; so replacing development is loans difficult. The residential buy to let lenders with their “off the shelf”, computer-driven underwriting programme also like to say “no”!
Now, there are some lenders out there that will offer a short term lifeline; a bridge. However, these are usually only up to around a max of 50% LTV, with very high interest rates (about 1.0% to 1.5% per month) charged and rolled up into the loan. This is only “stop gap” and further worsens the loan to value (LTV) when looking to replace the bridging lender.
OK, is there anyone in the market that can help you, the small developer, in the above situation? Well, YES, but there are criteria to satisfy.
Let’s look at the common sense questions that will be asked by the lenders:
- Does the applicant have sufficient and provable means of servicing personal debt?
- Can the developer demonstrate a three year track record in the business?
- Can the developer show experience in letting property?
- Is the loan to value (LTV) 75% or less?
- Does the target rent cover the loan interest using a stress calculation of at 125% of interest at 5% stress payrate?
- Will the property be let an AST or to a Local Authority/Housing Association on a 3yr/5yr basis?
- In the case of flatted developments, is the building still under one freehold title?
If the answer to all these questions is yes, we may be able to help with a lifeline. Please contact us on 0800 316 5756 or enquire online.