Construction And Building Refurbishment
Lenders look for certain criteria in order to lend in these difficult times for the building industry. That would include being able to service the loan, securitisation of the debt and history. Ideally a builder or property building company should have a good past track record that a potential lender can see in order to feel that a development would be a lesser risk. That is demonstrated with accounts indicating past trading.
The client will have to provide a deposit against the land normally up to 50%. A loan to value (LTV) of around 60% is possible however that would be reflected in a higher interest rate for borrowing. The same will apply for the build cost though this could include roll up of interest costs and professional fees.
The build will probably be asked to pay the legal costs of the lender along with a valuation and regular site visits from a quantity surveyor (QS) who will sign off certain works as stages are finished in order to release the next amount of funding. There can also be a entrance cost and a redemption penalty.
The lender will want to see evidence of the planning permission along with a staged costing breakdown provided for the build costs. Ideally the builder will be looking to build the houses quickly in order to sell and get away from the high monthly interest charges. As high street bank are reluctant to lend on these types of deal other specialist lenders will charge a higher rate to provide property development finance.
Many builders are looking at timber frame construction to overcome this problem as it can be installed quicker that brick work and is not reliant on the weather so much. The past few summers have been very bad for builders and rain can greatly impede progress. Which will lead to an increase in costs. Good situation would be to try and sell some of the homes before their are finished.
A shorter term development mortgage is required as it will probably be paid off on the sale of the property. The developer does not want to keep lending for long as it is generally at a higher rate.