Property Finance Loans
How to get a property finance loan for first-timers
Property development might seem from the outside as something of a closed shop, due to the sheer amount of money involved. Recent estimates suggest that house building can cost up to £3000 per square metre of property.
It may seem to a first-timer developer that raising the necessary cash is an impossible task, especially if high street banks have already turned down your development loan application.
However, all is not lost, and access to capital finance and the exciting world of property development is not as hard or impossible as it may have seemed at first. You simply need to know who to speak to, and how to do your research and preparation extremely thoroughly.
Prepare and research
Perhaps the most important part of securing your very first property development loan is to be prepared to do your research in advance. Many of the best private finance firms will offer a checklist of the work you need to have completed before applying for a loan.
Because of the large sums of money involved in purchasing land and building homes, be sure you have:
- A clear timeline for the completion of the project, including additional contingency time
- A realistic projection of the final value of the completed property
- The total cost of the build and the land purchase, fully itemised
- A viable exit strategy through sale or refinancing
- A professional team of architects and contractors around you
Bigger property project funding
The first port of call for many first-time builders, SMEs and developers, when it comes to securing financing, would be a commercial bank such as Barclays, Lloyds or RBS.
However, commercial banks are extremely risk-averse institutions and often turn down first-time developers for loan financing.
In the private development finance sector, however, a lack of experience is not a deciding factor in receiving financing for a project. Calculate how much you can borrow.
You will simply have to show any potential investor that you are prepared and have researched a viable and profitable opportunity.
Number crunching
In the simplest terms, securing property development financing as a first-time developer comes down to one simple equation; can your project make enough money to guarantee the lender a return on their investment?
If your pre-application research suggests that building your development will create a Gross Development Value (GDV – the final full value of the finished project) that is high enough, then it is likely an alternative lender will provide the capital needed to begin the work.