Buy-to-let mortgages have traditionally been the tools of choice for individuals and businesses looking to become private landlords. But as available inventory dries up or becomes impossibly expensive across much of the UK, potential BTL investors are setting their sights on alternative options.

One of which is to apply for build-to-let development finance, with the aim of building a property to subsequently be let out to tenants.

With build-to-let development finance, the funds are issued to cover the costs of the project during the initial build phase. After which, the loan is usually transitioned to a conventional buy-to-let mortgage.

BTL development finance can be taken out to fund projects of all sizes, with the development of both residential and commercial properties in mind. A build-to-let loan could be taken out to fund the development of a single home, or a large apartment block with additional facilities like a gym or shared recreation space.

But as is the case with all types of development finance, strict lending criteria apply with regard to who can qualify for funding.

Typical Lending Criteria

As with all forms of commercial finance, lending criteria and stress test policies vary significantly from one lender to the next. Primarily, anyone applying for build-to-let development finance will be expected to provide formal proof of a concrete exit strategy.

This provides the lender with reassurance that the loan will be repaid in full and on time, usually by way of transitioning the loan to a standard buy-to-let mortgage which should have been agreed in principle in advance.

Typical lending criteria that apply with most build-to-let development finance applications include the following:

  • Relevant experience in the property development profession and an established track record
  • A detailed and convincing business plan outlining the project in its entirety
  • Evidence of being in a strong financial position at the time with a good credit score
  • The ability to provide assets of sufficient value to be used as security for the loan
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Deposit requirements and maximum LTVs also vary significantly between lenders, highlighting the importance of shopping around for a good deal.

Alternatives to Build-to-Let Development Finance

If you are unable to fulfill the strict lending criteria above, there are alternative options available that could be used to fund a similar project. Examples of which include:

  • Bridging loans – Fast-access and short-term, bridging loans are issued near-exclusively on the basis of security (i.e. assets of value used to cover the costs of the loan).
  • Equity release – Releasing some of the equity you have tied up in any commercial or residential properties you own could also be a viable option.
  • Unsecured business loans – Applicable only for individuals with an excellent credit history and usually limited to a maximum of around £20,000.

Enlisting broker support at the earliest stage can simplify the process of finding which product is right for you and pairing your requirements with your ideal lender.

Particularly if you have a poor credit history, no formal proof of income or no provable track record in the sector, the support of an experienced broker could prove invaluable. One such broker is UK Property Finance.

Craig Upton

Craig Upton supports UK businesses by increasing sales growth using various revenue streams online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to increase traffic. Craig is also the CEO of iCONQUER, a UK based SEO Firm and has been working in the digital marketing arena for over a decade. A trusted SEO consultant and trainer, Craig has worked with British brands such as, DJKit, UK Property Finance, Serimax and also supported UK doctors, solicitors, builders, jewellers, to mention a few, gain more exposure online. Craig has gained a wealth of knowledge within the digital marketing space and is committed to creating new opportunities working with UK companies.

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