- 9th April 2020
- Posted by: DMM
There are a huge range of specialist property development finance lenders whom together offer hundreds of individual loan products. Assessing which loans may be available to you can be quickly checked using our online loan search platform, but in this article we look at the wide range of loan criteria.
Loan types will include senior development finance, stretch, mezzanine, bridge and even special VAT bridge loans. The choice is massive and knowing which product will be right for your individual financial requirements can be tricky.
Property development finance lenders themselves also come in different types from large institutionally funded banks, peer-to-peer lenders and ‘family’ or private JV lenders. Loan facilities can be from as little as £25,000 and go up to £150 million for the bigger players.
Property Development Finance Lenders Key Criteria
Naturally, all property development finance lenders will have their own set of criteria which will cover key elements such as:
- Loan to cost (LTC) – this may be as high as 100% in some cases
- Loan to Value (LTV) – often to maximum 75%
- Minimum and maximum facility amounts
- Minimum and maximum term – the max term is likely to be three years
- Preferences on geographical – this may be UK wide or restricted to the lenders local patch
- Preferred development types – that may include residential, commercial, mixed, PRS and so on
- GDV and individual selling prices – prime property is not for all lenders
- Developer track record – some lenders will only want strong and successful portfolio and CV, whilst others will consider first-time developers
- Finance structure – some lenders will not allow 2nd charge mezzanine lenders involved or third-party equity partners
If any of the above terms are unfamiliar then you might like to refer to our article on jargon which is aimed at first-time developers.
Other Lender Considerations
Each of the property development finance lenders will also have their own approach to certain other elements of a deal. For example, where a developer has achieved planning gain then some property development finance lenders will allow this to be considered as equity into the deal. This approach to ‘skin in the game’ will vary from lender to lender as many will want to see direct cash being risked by the developer.
Another key ratio that lenders will want to calculate is the projected net and gross profit for the developer. Where these ratios become too low then the lender may be concerned about any project overrun or decline in the property market.
How the lenders will consider the gross loan to value will depend upon the type of loan, be it a first charge or second charge facility. Further second charge security may also be a means to reassure a lender that their capital is secure should the worst happen.