There are no hard and fast rules and each case will be assessed on its merits. In general, we advise our clients to be prepared to deposit circa 25% to 30% of the property or business value i.e. a LTV in the range 70-75%. Mortgages for pubs will generally be limited to 60% to 65% LTV due to the higher risks associated with this sector of the market. Sitting tenants can often secure a higher advance.
With a Property Development loan much depends on the type of project being undertaken, the overall borrowing requirement and the anticipated profit margin that the project will generate. In addition the proven experience of the developer, his or her financial standing and / or the proposed contractor will also count heavily towards the underwriting decision.
A development loan is an interest only short- term facility and in most cases interest costs are accrued or ‘rolled up’ and paid on redemption of the loan along with the capital amount. In the current climate most underwriters will seek to limit the lending exposure to somewhere between 55% and 65% of the anticipated gross developed value (GDV) of the scheme. For example if the GDV of the scheme was anticipated to be £1 million on completion then the maximum exposure including accrued interest charges would be limited in the range £550K to £650K. For the right scheme this percentage might increase.
In a period of recession, falling property values and restricted mortgage availability all underwriters will focus closely on the exit strategy on completion of the development, be it a sale or re-finance. If a scheme appears to be marginal then please consult with us as there are a number of alternative loan structures that can be applied to see if the deal can be made to work.
In general terms, yes. If you are buying a business trading out of freehold premises we will obtain a professional report to verify the overall value of the business goodwill etc. which is sometimes referred to as ‘market value’ or MV1. Subject to satisfactory confirmation it is usually possible to secure an advance against the overall business valuation. Where the purchase of a trading business also includes machinery, vehicles equipment, stock etc. it is generally more appropriate to structure a separate loan to acquire these assets on a short- term lease or stock finance arrangement.
When an underwriter is assessing a mortgage application the key criteria will be the applicant’s ability to afford the loan repayments – sometimes also referred to as a ‘stress test’. Many mortgages will offer an ‘easy start’ period on interest only terms but most mortgage lenders wish to see both capital and interest repaid thereafter. In assessing your ability to repay the loan the underwriter will look at business income / profits and any other sources of confirmed income that you have. In situations where you are renting business premises and wish to purchase a freehold property (perhaps as a sitting tenant) then the rent you pay will be assessed as an ‘add back’ when looking at the overall position.
The applicant will have no fees to pay to secure an ‘Agreement In Principle’ (AIP) offer from the mortgage provider – we offer our services up to this point free of charge. Once the AIP is accepted by the client it will be necessary to schedule and pay for any valuation report(s) needed by the underwriter. The cost of which will vary dependant on the size and scope of the project but on commercial schemes we normally advise to budget £2 per £1,000 of property value.
After the valuation reports confirm a positive and viable loan proposition the lender will issue the formal offer subject to legal due diligence. At this point a non – refundable commitment fee may be payable to cover underwriting costs – this is generally deducted from the loan set up fees. Some lenders will require their own legal costs to be covered by the client though it may be possible for the clients / lenders solicitor to represent both parties. In addition to the interest charged on the mortgage or development loan there will generally be a set-up fee of between 1% and 3% of the loan amount, potentially higher on a short-term Property Development facility.
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ERC stands for ‘Early Repayment Charges’ – generally applied on longer term Commercial Mortgages (to protect the lenders anticipated margin on the deployment of the funds) if the loan is redeemed in the early years. Many lenders will charge ERC’s up to a three or five year point in the loan usually on a reducing scale but these can be as high as 5% of the mortgage amount if a facility is repaid in year 1.
For confidential advice on any further questions you might have please call us today to see how we can help. Alternatively please submit an enquiryand we will contact you, our advice is offered freely, confidentially and without obligation.
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