Has your development exit plan changed due to market conditions? Perhaps it’s time to review your finance strategy.
With all the turmoil in the mortgage markets, one less spoken-about knock-on effect for property developers is just how difficult it has become to refinance completed units onto a buy-to-let mortgage.
This is largely due to rental coverage rules which came into effect in 2017 under Cameron & Osbourne are making BTL refinance incredibly difficult.
As an example of this, we spoke to a developer client not long ago who found to his surprise that he was only able to raise 40% LTV against his newly completed scheme. This is because the monthly rental needs to be stressed against a rate of c.6.5% at anywhere between 125% – 145%, depending on the borrower’s tax bracket/the structure adopted.
This was problematic for the client as his development loan at completion was c.58% LTV, creating a significant shortfall that would have to be plugged.
We discussed 2 solutions, the first being an open market sale and the second being to refinance using a different financial product.
The client agreed that he now would have to sell the units, but as this wasn’t his strategy at the outset, he hadn’t allowed himself a sufficient time window with the development funder to be able to exit this way.
We, therefore, decided to look at alternate financing.
We managed to arrange a short-term development exit bridge which isn’t reliant on rental coverage rules.
0.84% p/m over 12 months.
We rolled the first 6 months’ interest up but then gave him flexibility by allowing him to service the interest for the last 6 months which gave him a 12-month facility without knocking the day one down too far.
This strategy allows the client the time to sell the units at a fair price on the open market and not fall into default with the incumbent development lender.
Development Exit Finance Specialists:
If you’re part complete on a development and would like some additional cash-flow-support to complete the works and extend the loan term, please contact us on 0203 096 0718 or fill in our online form here.
