What is a Senior Stretch Loan?

A senior stretch loan can help you purchase a property when you need a higher LTV such as 75% or 90% of the total project costs. It is technically a first charge development loan for residential and commercial properties and can help those with very small deposit contributions.

Senior stretch loans are very similar to bridging and development loans, helping customers such as property developers and investors to complete on projects without mortgages and those that are time sensitive.

In particular, as explained by Meraim, senior stretch loans are good for more experienced property developers who are investing in multiple projects or investments at the same price and can only make small contributions such as 10% LTV or 25% LTV and want to make their equity go further.

Senior stretch loan amounts can allow customers to borrow into the millions and they typically have a maximum loan term of 24 months.

The loan is secured against the property in question.

What Are Senior Stretch Loans Used For?

Senior stretch loans are used to purchase properties such as residential homes, flats, blocks of flats, HMOs and commercial properties such as offices, warehouses, retail units – but rather for investors, not individuals.

A senior stretch loan is used as a financial tool for a property developer or investor who is turning a profit or growing their portfolio. The property could be purchased with a view to renovate it and then sell it for a higher price (to flip it) or rent it out to tenants. If renting it out to tenants, the loan will be converted into a different loan like a buy to let mortgage.

Other reasons for using a senior stretch loan include:

• Getting capital to grow a property portfolio
• To fund a leveraged buyout or capitalisation
• Purchase another property whilst your money is tied up in one scheme already

Senior stretch loans help ambitious developers expand their portfolios by providing very high loan-to-value ratios and minimal contributions

How is Senior Stretch Different To Mezzanine Finance?

Senior stretch loans are used to help property developers get access to capital when their money is usually tied up in another scheme. The loan is high value like a mezzanine finance loan (up to 90%), but it is secured against the property.

A mezzanine finance loan allows people to top up on an existing bridging loan. So if they have borrowed 70% LTV through a bridging loan, but find that their costs are running over, they could borrow an extra 20% (up to 90%) using mezzanine finance.

By comparison, mezzanine finance is unsecured and is the lowest priority in the run of repayments for a customer. For the lender, this carries a lot more risk, being lower down the chain and without security, but in addition to charging interest, they receive a small stake or equity in the scheme.

What Are The Exclusions For Senior Stretch Loans?

Senior stretch loans are not applicable for heavy development projects such as airports, oil refineries, gas production or those projects with very high risk planning.

Is a Senior Stretch Loan Right For Me?

If you have an expanding property portfolio, a senior stretch loan may be a viable option for you, in addition to bridging loans and development finance.

If you wish to complete on a property within a tight deadline, senior stretch lenders can usually complete and transfer funds within a matter of weeks (not months) which can be very useful for ambitious developers.

It is important to note that the interest rate will be reflected in the risk of the project and these can be much higher than traditional banks and mortgages and you will need to weigh this up.