With home ownership seeming far out of reach for many, and demand outstripping supply, build to rent is key to ensure high quality rental homes are available to those who require them. This creates an opportunity for developers who would otherwise have sold, to retain property for the rental market – build to rent can be a very lucrative investment.
For developers of this type of project, there are some challenges in terms of financing as a number of development lenders prefer the exit to be a sale, rather than tenanted. However, with build to rent a growing industry, it’s something which will likely become a lot simpler.
The challenge faced by developers whose end result is rented accommodation is that development lenders tend to be specialists in this area and don’t to do anything else – i.e. buy to let lending. The issue being they are unable to manage the process if the unit is not being sold after completion. A development lender will consider the marketing plan, who will be selling the unit(s) and who will be buying them, when deciding whether they will lend. If later down the line the developer is seeking a buy to let mortgage, and it’s something they cannot provide, they will be less likely to lend in the first place.
What finance is available to the build to rent market?
Furthermore, developers often don’t realise they are able to take a development loan out on a unit, at an acceptable level of gearing to release equity to move on to the next project, whilst retaining the rental portfolio. It might be a developer wishes to sell but it’s not the right time to do so – for example, the current market conditions or the location is set for growth – so keeping hold of it for the rental market is more of a viable option.
However, our expert brokers have spent years building relationships with a wide variety of lenders and as such are able to overcome such challenges. Firstly, some lenders will be happy for another lender to take the property on at ‘practical completion’ – this is when a property is not completely finished but can be moved in to, often before the snagging phase.
Secondly, a development lender may offer a term loan offering – for example, over five years, allowing the property to grow in value. The developer may need to prove they can secure a buy to let mortgage in line with the development finance to ensure it is viable to the lender.
Whatever your development finance needs, speak to our expert team of brokers who will be able to find a solution to your requirements.