Property Development Finance
We were approached by a CEO of a London based Wealth Management firm who needed assistance in acquiring a residential property development finance or loan in order to completely demolish and rebuild his primary residence located in Surrey. He had obtained full planning to build his dream home on the site and had made arrangements to rent an adjacent property for a period of 18 months during the build period. The build cost amounted to £2 million.
What Is Property Development Finance
Property development finance mainly involves funding a construction project with debt secured from one or more lenders. When a developer buys a piece of land and goes on to obtain planning permission to build several houses on the site – they will usually require some form of debt to help fund the construction costs. The UK is a rich and competitive market for development finance and there are dozens of lenders all specializing in different loans and focusing on different property project types. The lender will take a legal charge over the site or project and the borrower will pay off the full lump sum once the project is sold post-construction.
Property Development Finance Process
The process of obtaining property development finance for any borrower will initially entail a fact-finding process regarding the borrower and the particular construction project needing funding. The advisor will then collate this information and make an educated assessment on which lenders are most appropriate and will look to approach two or three of them at most. Approaching too many lenders at once can work against the borrower and can devalue the deal. The broker will then present the results to the borrower in a concise manner and discuss these positives and negatives of each deal ensuring the client has all the info they need to make a decision.
How Lenders Assess Property Development Finance Applications
Lenders will look favorably upon property development finance applications that are properly packaged by the broker or advisor. By this we mean the deal is properly researched and proposed to the lender in a clear and concise manner. All of the detail the lender needs to evaluate a deal should be provided to allow them to make a proper assessment of the project and the loan amount required. This detail will contain info about the borrower, their track record and experience in the market, and the project being built. Providing all this info upfront will ensure a strong start to the application process and give the lender confidence in dealing with a new borrower for the first time.
Problems To Solve
Finding a development finance loan that flipped on to a regular residential mortgage would prove challenging with conventional development lenders as they tend to only operate in the short term market. This called for a creative approach from our team – we henc approached a London-based private bank to structure a deal that would fit this client’s circumstances.
We were able to secure a cheap residential development facility and place the client with a reputable private bank which allowed him to flip the construction loan on to a regular interest only residential mortgage (5 year term) following practical completion of the build.
Residential Development Finance Facility £2 million (Net)
70% Loan to Value (85% Loan to Cost)
Fixed Rate 4.5% per annum
Term 18 months
Interest Rolled Up
No AUM Requiremnt