Have you considered?…..
- Your own experience. Is this a type of project that you have completed before? Lenders are ideally looking for past experience or a strong team behind you.
- Carrying out the necessary due diligence on the proposed site. What type of units will sell, detached, semi Detached or apartments?
- Will your end buyer be private sales or investors?
- Have you obtained a selling Agents opinion on the proposed sales prices and have you tested these with other Agents?
- Have you allowed for a drop in market prices to ensure the project is still profitable?
- How good is the access to the site and the communications routes?
- Is planning in place already? If so, but the scheme doesn’t work, can this be changed? Lenders require PP to be in place before drawdown of finance.
- Can I fulfil the planning condition?
- What level of spec is needed? Is a high end finish required to meet demand?
- Can I source both labour and materials locally that are reliable?
- If you are using a separate contractor, do they have the required experience and are they financially sound?
Financial Factors to Consider
How good is your Personal Credit Profile and that of your business?
- Can you fund your personal commitments from other sources or will the project need to pay you a wage?
- Can you buy the site from your own resources? Lenders can then look to fund up to 100% of the professional fees and build costs, subject to this not exceeding 65% of the end value of the site including interest roll up.
- Assistance towards the purchase of the site or clearance of any existing mortgage can be sourced subject to no more than 70% of overall costs and not to exceed 65% of the end value including interest roll up.
- Have you considered all costs and built in a contingency of 15%? This is a typical figure, Lenders will look for.
- What is your proposed Profit Margin on the proposition? Lenders look for 20 – 25%
- If the units don’t sell, what is your exit route? Can you retain, rent out the properties and repay any development funding with BTL Mortgages?
- How long do you need the funding for? Have you allowed for both delays in building and time to sell?
Ownership Structure of the Proposed Site and Borrower Name
Who owns the site or who will purchase the site? Will you buy it in your sole name or a Partnership or in the name of a Limited Company (SPV)? Advice from accountant at the outset is essential.
If you are building out the site yourself it may be appropriate to buy the land in one Company name and have a separate Company to undertake the build. Again take advice from your accountant.
For borrowing purposes a Lender can adapt the finance to the structure you set up. However if you borrow in a Company name you will be required to provide Directors Personal Guarantees and a Debenture as well as a first charge on the site.