The lending criteria for property development finance is complex and vast. For brokers who specialise in this type of product, with access to the whole of the market, their knowledge and experience can be a determining factor for a borrower’s success. During our time in business, we’ve acquired a very good idea of what works and doesn’t work. Here are some examples.
1. Know the potential lenders in your market.
Few property developers can afford to achieve their objectives counting on the same lender over and over again. Every project and case is different – needing to be tailored to fit what is an enormous array of products on the market. Yet many developers are simply not aware of all the choices available to them. Getting the right finance in place requires a deep understanding of the funding opportunities at their disposal, large or small. Brokers can help by finding the most competitive pricing, which in turn helps with tight profit margins. They know how to structure a deal and customise it to the type of project a developer is working on.
2. Are you missing out on the best deals?
Property development finance isn’t easy. The complex processes and unfamiliar terminology can be daunting for many developers. Case experience is vital to knowing how lenders work, what they can deliver, their timeliness, the opportunities they present, and the level of risk. A good broker will not only source the deal for you but ‘hand-hold’ the case all the way through to drawdown and beyond.
3. Lenders like experience.
When it comes to property development finance no two projects are ever the same! Whether you’re a first-time developer with zero experience or highly skilled, knowing which lenders will entertain your proposal is key. There are big differences between, for example, a small conversion into flats and a multi-phase new build project. They are opposite ends of the spectrum and lenders place huge store in experience when making funding decisions. It counts for a lot!
4. Think presentation.
How your case is presented to underwriters and credit teams is equally important. The devil is always in the detail! All lenders have detailed information requirements, and often little time to process it. Making it compelling, and in the right format is essential in speeding up the whole process!
5. Fail to prepare. Prepare to fail.
Preparation is key. Making sure that the figures work and simple things like making sure there is planning in place are a given. Other important aspects to consider include implementing a purchase plan; making sure you’re not paying over the odds for a development site; and, getting a full breakdown of the building costs so that accurate calculations can be made. Clarity at this point will add more relevance to a case.
6. Reach out to others.
Development projects often have multiple skills needs, sometimes requiring specialist knowledge, e.g. for basement digs or a listed building, where lenders will often need evidence of this. Getting a contractor on board with these types of practical skills to support your case can be a good move, or if you have worked as a project manager with other skill-sets, for example; this may also qualify you for funding. Taking small steps is also key. Developers who have done a couple of refurbs and an HMO conversion and now want to fund a new build of 15 commercial units, say in the middle of London, are highly unlikely to find a lender who is comfortable with the scenario. However, all may not be lost. Bringing somebody on board with practical know-how could sway a decision.
7. How lender time flies.
Managing expectations when lenders are unresponsive is a common challenge. The turnaround of SLAs for example can sometimes be slow, especially when funding demand is high (the recent stamp duty holiday has contributed to this!), often adding weeks to the application process. However, this can vary from lender to lender with the smallest sometimes having the upper hand over a term lender simply because they have exclusivity with brokers and are able to control the volume of work they have to deal with.
8. Have a vision.
Imagine what could be done when you try to hammer out a strategic view of your project. It could lead to relatively less painful ways of getting finance! For example, developers who plan development budgets effectively, are more likely to implement a well-structured financial strategy aligned to a strong build and exit plan. Moreover, it may also lessen the potential for unforeseen risk. Developers need to be very aware of their outgoings and have a realistic idea of how long it will take to see returns on their project. Good brokers can help with this!
9. Exit with confidence.
The primary purpose of any project is a profitable exit. If your borrowing hundreds of thousands of pounds, it’s likely to require tens of thousands of pounds in interest and fees. It’s also true to say that any delays, even 1 to 2 months could be very costly, whilst defaulting on a loan could even lose you the property. When choosing finance make it a priority to talk about the exit strategy. What are the options? (You need A, B, C, and D). One option alone is too high risk as markets naturally shift and products change over time.
10. Use a tried and tested formula.
In many instances, the features and benefits of competing financial products may not be the same, but on balance one development finance product will equate with another, in terms of providing fast access to funds, staged payments, with no specific upper limits to how much can be borrowed. The skill of a broker is in directing you to a suitable lender and working with you to maximise the appeal of your project.
11. Find a good broker.
If you feel, as a developer, your projects could do better financially, why not try a specific project with The Property Finance Collective. We’ll tell you if we can get you the property development finance you need. We’ll also tell you exactly what it is going to cost. If you’d like to hear about our broking work call our Managing Director, Michael Primrose on 01775 713777.