Our client has planning permission to knock down his former residence and build 4 detached properties with a GDV of £5m. He required development finance of £2m which was equivalent to 70% of the total build costs. The client was a retired professional with some development experience. Most recently he had project managed the construction of his current residence which was worth £2m.
We were able to secure a facility of up to £2m for our client at a fixed rate of 7% over a 36-month term.
The main issue that the client faced was convincing the lenders that he had the requisite experience to deliver a development of 4 units. In the current climate, most lenders would be unlikely to offer a loan to an inexperienced developer attempting to sell multiple properties for more than £1m. Typically, for a development of this size lenders will require that the applicant has a strong recent track history of not only developing sites but also having successfully obtained finance and delivered an exit route.
Of the handful of banks that would consider a development loan for our client almost all would require that the build was carried out by an experienced construction firm under a JCT contract.
Our client’s experience had been sporadic and he had never developed more than one unit at a time. He had not recently obtained development finance as he had self-funded his development projects and he planned to project manage the build in conjunction with a chartered structural engineer and a team of sub-contractors.
“We built a business case for the client which included a brochure highlighting the quality of his development projects.”
Bridging Lenders could potentially offer a loan to our client but typically at rates of more than 1%+ per month. Very few major development lenders could offer a loan due to their criteria on development experience.
Key to securing heads of terms for the full facility was to build a business case based on the quality of the client’s developments and the competence of his team in place.
Specialist Mortgages worked in conjunction with the client and our contacts at the bank to build a strong presentation and credit paper.
We built a business case for the client which included a brochure highlighting the quality of his development projects. We evidenced the competency of his team by providing detailed costings and cash flow forecasts. Projected valuations of the completed units with commentary were then obtained from top national surveying firms and a site visit was arranged to give the bank a full understanding of the development.
We secured a deal with a major development lender at a fixed rate of 7% which was considerably cheaper than the typical bridging rates offered to the client. In addition, the deal was structured over a 36-month term rather than the typical 24-month term to offer the client additional security.