66 . 7 %

By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 19th October 2020*

We hear from lots of customers who are interested in build to rent investment, from experienced developers to first-time investors.

Many of them want to know whether there are specific build to let mortgage products available while others have asked us about alternative funding options and how they should go about applying for them.

To answer these questions and more, we’ve put together this guide to build to rent finance, and you’ll find the following topics covered below…

We’ll find the perfect mortgage broker for you - for free

Save time and money with an expert mortgage broker who specialises in cases like yours

  • We've helped over 120,000 get the right advice
  • Our form only takes a minute, then let us do the hard work
  • Save up to £400 per year with the right advice (source: FCA)
  • All the brokers we work with have whole of market access

Build to rent definition

Build to rent is a term used to describe a type of property that is designed specifically for the private rented sector. They often have features like communal spaces for tenants, on-site maintenance teams and the option for renters to take out longer tenancy agreements.

A developer would usually invest in this type of accommodation to let it out for long-term rental returns, rather than to sell on for a quick profit.

What is build to let?

Build to let is the same thing as build to rent. These terms can be used interchangeably.

Build to rent mortgages explained

Given that most build to rent schemes are developed with long-term rental returns in mind, they are usually under the ownership of property firms or pension/insurance investment companies. Because of this, you won’t find too many of them available on the market.

Build to let mortgages are most commonly offered to investors who have broken into this sector by developing their own build to rent property or properties. To do this, you will need the means and expertise to get a development off the ground, and that often means sourcing short-term capital to cover the initial site purchase and the building costs.

How does a build to rent mortgage work?

Build to rent mortgages aren’t actually a product in their own right. The type of mortgage you would need for a build to rent scheme will depend on a number of factors, including the number of rental units the building will house post-completion.

You would initially get some sort of development finance whilst the project is going through the build phase and upon completion, you would exit onto a more standard buy-to-let product.

If the scheme contains between five and ten flats in a single block, it would be classed as a multi-freehold property, and a lender might be willing to offer you a single buy-to-let mortgage to cover the entire property, allowing you to rent out each unit individually.

However, if the property has more than ten units and other facilities, such as a tenants’ gym and a base for the on-site security, a specialist commercial buy-to-let lender would most likely be called for.

For more information and advice based on your own personal circumstances, speak with us today. We’ll connect you with an expert for a free, no-obligation chat about your build to rent finance needs.

What’s the difference between a BTL mortgage and a build to rent BTL mortgage?

The main difference between standard buy-to-let mortgages and build to rent buy-to-let mortgages is that they are most commonly offered to property professionals who can prove they have the means and expertise to develop a build to let scheme.

These mortgage products are commonly used as an exit strategy for build to let development finance, which developers can use as a short-term means of funding a site purchase and the subsequent construction work, before refinancing the funds onto a buy-to-let mortgage based on the scheme’s post-development value.

How do I invest in the build to let market?

If you’re a developer looking to break into this market, one of the first things you’ll need to consider is how you plan to finance the purchase of the site and bankroll the construction work. For many investors, this means taking out a short-term loan, such as development finance.

Most development finance lenders are willing to offer eligible borrowers 70-75% of the initial purchase cost and 100% of the construction funds (released in staged drawdowns, usually subject to a site inspection ahead of each funding phase).

How do I get build to let development finance?

To get a development finance loan, you will need to evidence a strong exit strategy, and in this case it would usually be to refinance the funds onto a buy-to-let mortgage. Presenting an agreement in principle to the lender would certainly help your cause.

Development finance lenders also prefer borrowers with…

  • Development experience and a strong track record in the industry
  • Clean credit (but bad credit is usually only a deal-breaker if it puts the exit at risk)
  • A healthy deposit and good security (putting down more than the minimum can lower any perceived risk the lender might be concerned about)
  • A strong business plan (outlining rental projections, occupancy forecasts and your build to rent business model)

Development finance for residential purposes is harder to come by than its commercial equivalent, since permissions from the Financial Conduct Authority (FCA) are more difficult to obtain. This means your choice of approachable lenders will be fewer.

It may, however, be possible to find a lender who would offer you both the development finance loan and the subsequent mortgage for your build to let property, although using different lenders may be an option, depending on which deals you qualify for.

For deals of this nature, the best place to start is by speaking with a development finance broker. That way, you will have access to all of the best deals you qualify for as well as the right lenders for the mortgage you’ll need afterwards.

Make an enquiry to speak with one of the advisors we work with today.

What other build-to-let finance options are available?

Besides development finance, there are several options you could consider if you’re looking to break into the build to let market but don’t have enough capital, including…

  • Releasing equity from other properties in your portfolio:
    If you own a portfolio of properties already and hold sufficient equity in them, remortgaging them could release enough equity to invest in a new build to rent project.
  • Bridging loans:
    A bridging loan might be a viable option here if you already have some capital for the development work but need fast funds for the site purchase. Bridging finance is also a short-term solution for which you would need an exit strategy, in this case refinancing the loan onto a BTL mortgage.
  • Unsecured business loans:
    If you have some funds to invest in a development project, but not quite enough, an unsecured business loan might be a viable alternative to development finance. These loans can provide up to £25,000, so if you don’t need any more than that, this could be a more cost-effective option.

These are merely a few of the funding options available for build to let developers and what your best option is depends on your own unique circumstances. There might be more on offer to you, and if you make an enquiry, the advisors we work with can help you decide the best course of action and introduce you to the right lender.

What are the benefits of a build to rent mortgage?

Customers often ask us questions like, “Why should I build to rent?” and we usually tell them all about the potential benefits of investing in this sector, but it’s wise to be aware of the possible pitfalls too.

The pros of build to rent investment

  • There are a number of government build to rent schemes that could help support your investment, such as the private rented sector housing guarantee scheme
  • The build to rent market is forecast to grow in the coming years
  • The opportunity to offer long-term tenancies can provide a stable income stream

The cons of build to rent

  • It could prove difficult to sell the property should you ever need to
  • They require significant capital to get off the ground and short-term lending solutions such as development finance can come with high interest rates
  • Build to rent returns can take time to come through. A build to rent venture usually calls for major investment and it might be a while before that is recouped through rental income, even if you achieve full occupancy from the off

Buy-to-let vs build to rent

There are a number of potential benefits to investing in the build to rent market as an alternative to building up a portfolio of buy-to-let properties, including high rental returns, and the opportunity to earn steady, longer-term income through lengthier tenancies.

Landlords in this sector can also provide additional services for tenants, such as on-site maintenance and communal facilities, offering a higher-quality living experience.

On the flip side, standard buy-to-let properties can also have benefits over rent to buy. For example, purchasing a portfolio of houses to rent out could work out less expensive than funding a large-scale rental development, and selling them would likely prove more straightforward if you ever decided to offload.

Whether you should ultimately invest your capital into a built to let development or a buy-to-let portfolio will come down to a number of factors, including your affordability, needs and circumstances.

Make an enquiry and the advisors we work with will go over the pros and cons of both choices and help you decide the right course of action.

Which companies provide build to rent mortgages?

You may be wondering how and where you can you best finance your build to rent mortgage. There are both high street lenders such as Barclays or Lloyds and specialist providers which cater to people looking to fund their build to rent property.

However, you’ll have to carefully research the market to find the best offer: the build to rent mortgage market may be up and coming, but it remains a niche area for many mortgage lenders. This means there are no obvious go-to providers for getting a build to rent mortgage.

It’s best to speak to a specialist advisor who understands the details of the build to rent market and can take you directly to your most suitable and best-priced offer.

Can I get a build to rent mortgage anywhere in the UK?

You can, although the location is a factor most lenders will consider when arranging finance for a build to let development. For example, your choice of lenders may be restricted if you plan to build in the Scottish highlands or outer islands.

Are there build to rent schemes in London?

Yes, and your application is more likely to be successful in an area where the rental market is strong and there’s a need for new homes. Build to rent schemes in London, for instance, are more likely to be approved than one in the Scottish Highlands.

So, is it possible to get built to let finance in Scotland or Northern Ireland?

Yes, it is possible to find build to let finance in Scotland despite the postcode restrictions and the sector is an emerging one in Northern Ireland.

If you’re looking for finance in territories where it’s harder to come by due to there being fewer build to let providers (like Scotland and Ireland), it’s vital to speak with a specialist advisor before proceeding, to make sure you end up with the most favourable deal.

Speak to a build to rent expert

If you have questions and want to speak to an expert for the right advice, call 0808 189 2301 or make an enquiry for a free, no obligation chat.

We’ll connect you with one of the experts we work with, ensuring they have experience of helping customers secure build to rent finance.

They can offer you expert advice and introduce you to the build to let companies best positioned to help a borrower with your needs and circumstances.

Updated: 19th October 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.