Why property developer funding sometimes doesn’t work out

Securing financing for your property development – whether you’re looking to restore and sell, or are buying a long-term rental property – can feel like jumping through endless hoops.

And along the way there are a number of factors that can affect the success of your application. Here are just a few...

Bad planning

There are many things that can go wrong from the start of a project to the end. But as a property developer, no matter whether you’ve got a portfolio of two or 20, it’s your job to try and minimise these potential setbacks.

If you therefore fail to acquire financing through bad planning then it’s only your own fault. For first time developers, some level of bad planning is acceptable, but the more experienced should have their timetable down to a tee.

Poor paperwork

The worst sin after bad planning is poor paperwork. While mortgage applications are much stricter these days, there’s still no excuse.

This could be anything from missing out key sections of application forms to not providing bank statements or other supporting documents on time or in the right format.

Documents you’ll need include:

• 3 months’ of payslips
• A P60 form
• 3 to 6 months of bank statements – not print outs
• Statements from any savings accounts
• Proof of benefits received
• Utility bills
• Passport or driving licence (to prove your identity)

If you’re self-employed, you’ll also need 2 to 3 years’ of accounts from an accountant, the tax return form SA302, and other information to support the SA302 form such as bank statements.

Credit problems

Our credit histories can be something of a mystery to most of us. While we might think we’ve got a clean one, there are a couple of things that might be affecting it that you’re either unaware of or have simply forgotten about.

These could be small things like missing payments on your credit card or not being registered to vote. Both can give you a poor credit score that could slow or even stop your funding application.

The best fix is to simply run a credit check yourself before you apply. This way you can get to the bottom of any issues that come up.

Failure to secure an exit strategy

When it comes to bridging loans, one of the most important aspects of your application is your exit strategy. This basically shows the lender the way in which you plan to repay.

An exit strategy is usually one of the following:

• Refinancing. A bridging loan helps you to secure a property fast. After you’ve got the property, you can then spend time organising long-term financing. This will be then used to pay off the initial bridging loan.
• Selling. Often, a bridging loan is used to buy a property on which you plan to do work. Once the work is completed, you can then sell the property, using the money raised from the sale to pay off the loan.
• Cash. If you have the cash coming in, but not fast enough, a bridging loan can be used in the short term. When the cash arrives, it can be used to pay off the loan.

Differing valuations

Some properties are easy to value. But with some, you can ask three estate agents for a value and get three very different answers. This shouldn’t be a problem, but it can become an issue if the level you want to borrow is vastly different from the valuation given to the loan provider.

At this point they might suggest you want to adjust your borrowing levels. But as property development is run on fine margins, this could scupper your whole project.

Acts of God

The best laid plans, and all of that. Even when you’ve planned everything perfectly, have all your documents sorted and everything is running smoothly, there are things you can’t plan for.

Whether it’s a freak flood damaging the property you’re looking to buy, losing your job, a computer crash deleting all your important documents, or an illness that prevents you from being able to move forward, things do, and always will happen.

In some of these cases, it could mean your mortgage application stalls or comes crashing down. But it doesn’t mean you have to miss out on your property. A bridging loan can help you to secure your property as long as you’re able to provide an exit strategy.