How build to rent differs from build to sell
On a build to sell scheme, the lender is repaid as each unit is sold. On build to rent, the units are kept, so the development loan is repaid by refinancing the completed building onto a long-term investment loan, or by selling the whole building to an investor.
That means lenders look closely at two values. The first is the investment value, based on the rent the building will produce and the yield an investor would pay for it. The second is the value of the units if sold individually, which gives a fallback if the rental plan changes. Where the two differ, lenders usually lend against the lower figure. Our guide to gross development value explains how values are set.
The National Planning Policy Framework recognises build to rent as a distinct form of housing, and some councils apply different affordable housing rules to it, so the planning permission is a good place to start.
Planning the exit: lease-up and refinance
A new rental building is rarely full on the day it completes. It takes time to let the units, and investment lenders usually want to see the building let and income established before they lend at their best terms. The development facility needs a term long enough for construction plus a realistic letting period, or a plan for a short stabilisation loan in between.
A development exit loan can repay the development lender at practical completion and give time to let the units before the long-term refinance. Some lenders offer a development facility that moves onto a term loan with the same lender once the scheme is let, which reduces refinance risk.
Lenders will want to see a letting plan, evidence of local rents for similar homes, and an allowance for operating costs such as management, service charges, maintenance and voids.
Design and management
Build to rent schemes are judged on how well they will let and how efficiently they will run. Lenders and valuers look at the unit mix compared with local demand, the quality of shared spaces, the durability of finishes and how the building will be managed. An experienced managing agent, or an operator with a track record, strengthens the case.
Smaller schemes held by a private landlord can be funded in a similar way to standard residential development, with a refinance onto a buy-to-let or portfolio mortgage once let. Larger schemes are more often financed with a view to a sale of the whole building to an institutional investor.
How we compare lenders for build to rent
Fewer development lenders are comfortable with a rental exit than with a sale exit, and terms vary on how they value the completed building, how long they allow for letting and whether they offer a route onto term finance. We compare those points alongside rate, leverage and fees.
We then approach suitable lenders with the appraisal, the rental evidence and the exit plan set out clearly. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation, monitoring surveyor and credit checks. The residual land value calculator can help you test what you can afford to pay for a site.
