Development finance exit strategy for £3.2million block of flats

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THE SCENARIO

After the successful completion of a project, having a development finance exit strategy in place is essential, as development finance is typically more expensive than buy to let or residential lending. I was recently delighted to assist some clients who need to refinance from development finance to a buy to let facility.

The two clients were brother and sister; she was the owner of the property and had her name on the mortgage, whilst my client’s brother, a successful property developer, was the guarantor on the mortgage.

The asset in question was a development of six flats in London, with a combined valued of £3.2million. Following the successful completion of the development, my clients were now looking to borrow £2.1million on a buy to let mortgage basis.

However, my clients faced a common problem experienced by developers. By the nature of their work, developers’ income is often quite inconsistent and does not resemble a traditional salary. A developer might receive a large payment on the sale of a property, for example, but not receive any further payment for several months. This can make lenders feel uncomfortable about lending large facilities, as it can be difficult to demonstrate the developer’s ability to service the loan.

This was the case in this instance; my client’s brother was asset rich but had limited cash flow because he was continually reinvesting his wealth into new projects. He was also resident and domiciled in Europe, creating a further complication.

OUR SOLUTION

Fortunately, my client’s brother was a very experienced property developer, so I was able to use the strength of his profile to demonstrate to lenders that he was a very low risk client. I sourced a suitable niche lender and highlighted his excellent track record with such schemes.

By providing a thorough outline of the brother’s profile, I was able to navigate the hurdles of this case and secure a 65% loan to value buy to let mortgage, which was an excellent development finance exit strategy for these clients.