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 30% to 35% of the property or business value i.e. a LTV in the range 65-70%. However in many cases, the size of the loan will be determined by the amount of rent or profit available to support the loan and this can reduce the loan LTV. 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. Senior lenders will normally lend up to 60% – 65% of the anticipated gross developed value (GDV) of the scheme and 75% – 85% of total development costs. Stretch-senior Lenders can lend up to 70% of GDV and 90% of total development costs with mezzanine Lenders taking this further to 75% of GDV.
All underwriters will focus closely on the exit strategy on completion of the development, be it a sale or re-finance.
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 interest only terms but other mortgage lenders may wish to see both capital and interest repaid. In assessing your ability to service the loan the underwriter will look at rental income on an investment property and business income / profits on a business mortgage. 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 or quantity surveyor report needed by the underwriter. The cost of which will vary dependant on the size and scope of the project.
After the valuation and quantity surveyor 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. Lenders will require their own legal costs to be covered by the client. In addition to the interest charged on the mortgage or development loan there will generally be a set-up fee of between 2% and 3% of the loan amount.
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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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