Security Requirements For A Property Development Loan
If you are seeking property development finance from your bank or other specialist lender, there are a number of requirements that you will need to be aware of with one of those being what security the lender is likely to insist on. So, let’s have a look at the potential security requirements for such finance.
Before we do, it is perhaps worth mentioning the reason why a lender will want security. Quite simply, it will want to reduce the risk of loosing any of the money it lends you as much as possible.
It is also worth noting that, from the property developer’s perspective, by arranging such finance on a secured basis the interest rate is likely to be lower than if the lender had been prepared to advance the monies without any security. Obviously, bearing in mind the sums that are normally required for property development projects a lender is almost certainly going to want to lend on a secured basis.
Whilst lenders may have different criteria, as a minimum, the lender may wish to take a first legal mortgage over the land/building(s) to be developed as security for the borrowing. It will require an adequate security margin so may consider advances of up to 75% loan to cost and 60% of the gross development value (GDV). In addition, in the case of borrowing in the name of a limited company, the lender may require personal guarantees from the directors/business owners to bolster their security. These guarantees could either be unsecured or secured by say a first or second mortgage over the directors/business owners’ residential properties.
Obviously, the above is just a guide as each lender will look at its security requirements on an individual basis. This is something that the specialist that Commercial Mortgage Link puts you in contact with can discuss with you in greater detail.