PROPERTY DEVELOPMENT FUNDING
The phrase property development funding captures a number of areas in the construction sector. Not only does it cover the many disciplines, new developments, rebuilds, refurbishments, it also ventures in to land acquisition on planned plots and even some on pre-planned plots. We know that there are many internal factors that can affect the process of lending but we have looked at we have experienced more than once and as such feel we can explain for the benefit of those who need it
However, when securing property development funding it appears not to be enough to know what you want it for, as a range of other factors can affect the ability for the borrower to actually get the property development funding they require. These are not often advertised or even quoted by eager marketing campaigns or over-enthusiastic business development teams.
We have decided to try to make this simple and in layman’s terms, to do so we have looked at the other factors that from experience we believe have stopped dead what seemed to be legitimate property development funding options.
THE EXPERIENCE OF THE APPLICANT
This really does depend on the scale of the project and this makes total sense, so why not make sure you are aware before saying in YES in principle. An eager but novice building team should not be trying to take on a multi-house development without full support and expertise of an experienced team. However this clause does not cover all eventualities, some keen and capable project managers can build one property from the ground up, this has been proven many times over.
Our Advice in this matter: Ask before you approach a lender what impact this will have on your project
THE LOCATION OF THE DEVELOPMENT OR PROJECT
This we find logical but completely subjective, Some funders do not like to lend in some areas and we will quote that is “Too far away” We really do not see what impact this will have if the affordability and security meet the criteria. We understand that the region may affect the security risk but this should reflect the loan LTV. We also understand legal nuances but again if not prepared to lend in the region do not state UK lending unless it is all the UK, Train BDs what they can and cannot say. This is simply wrong to string borrowers along
Our Advice: Ask can the geography affect the decision outside of LTV and anything but NO, walk away
Many funders will issue headline terms and in most instances, they will be very clear about what this means. The funder should be able to give you an idea of rates but make it very clear that it is all subject to underwriting. So why does it still happen that some funders will tell you they have had a word with underwriting and it looks ok or have to change the terms which one would expect a deal done scenario. Then pull the deal as the valuation, area, risk, or Director says it’s not one for us. We have just had this experience and for the sake of what should be a better-controlled business, we will not name this company.
Our Advice: Do not assume anything, do not believe anything until you have a firm and contractual offer in your hand. Have more than one option running as its likely one of the scenarios above will prevent the offer being made.
ON THE FLIP SIDE
There is no point a borrower overvaluing the asset or stretching the truth, to gain property development funding, this will be uncovered and you will have wasted a lot of time. We cannot hold any funder competent or incompetent responsible for rejecting an application a deal when they uncover false information.
Our Advice: Do not overvalue asset if anything undervalue the asset, do not inflate experience and do not misrepresent financial forecasts or projections if anything be conservative.