Build-to-Let: A Brief Overview

build to let overview

In the UK the typical approach to generating long-term revenues from a rental property has been buy-to-let investments, this is where an individual or organisation invests in an existing property in order to let it out to prospective tenants as a landlord.

With affordable inventory becoming increasingly thin on the ground, alternative options are being explored by new and established investors alike.  One of which is build-to-let investment opportunities, which call for an entirely different form of finance.

What Is Build-to-Let?

As the name suggests, build-to-let refers to a development project wherein residential dwellings are built with the goal of being let out to tenants. A specialist type of development finance product, build-to-let funding is available exclusively on projects that result in the creation of three or more residential units.

These units can be flats, houses and other types of residential dwellings, which may be created in the form of refurbishments, property conversions or new builds.

Where specialist build-to-let finance is available, it is typically offered in the form of three different types of products:

  • Residential finance– available for the development of most types of residential dwellings, including flats, houses, student accommodation and Houses in Multiple Occupation (HMO).
  • Commercial finance– offered for the development of business premises and office spaces, along with storage facilities, factories and general commercial units.
  • Mixed-use finance– issued for projects involving the development of properties to be used for multiple purposes, such as a combined commercial and residential property.

Build-to-let finance is typically issued primarily on the basis of the property’s estimated value upon completion. As with all secured borrowing facilities, the lender has the right to repossess and sell the property to recoup their capital if the borrower is unable to repay the loan as agreed.

What Are the Potential Advantages of Build-to-Let Finance?

The main advantage of build-to-let finance is the way in which it is a fully made-for-purpose solution for these kinds of investments. All aspects of the loan are engineered with the requirements of build-to-let investors in mind.

Build-to-let finance is often available over a much longer term than many comparable short-term development finance products; this provides the investor with greater flexibility in regard to subsequently repaying the loan over a number of years.

In terms of LTV, a typical lender will provide build-to-let of anything from 60% to 75% of the property’s value, this therefore means an initial deposit requirement of around 25% is needed, which may be negotiable depending on the lender in question.

Build-to-let loan values can be exponentially higher than those of many comparable secured lending products; depending on the requirements of the project and the financial circumstances of the applicant, build-to-let loans are available from £1 million to £10 million or more.

Independent Broker Support

As there are comparatively few lenders in the UK who specialise in build-to-let finance, independent broker support is essential.

For more information on any of the above or to discuss your requirements in more detail, contact a member of the team at UK Property Finance today