In the difficult financial climate which currently prevails in the UK
many established Property Developers and Builders have experienced significant problems in obtaining the necessary support to continue doing business. Whilst there has been some relaxation of late , the major High Street Banks in the UK still have very limited appetites to support speculative multi – unit development projects ( i.e. those without significant pre-sales in place ).
Generally they are only keen to lend to the more established clients and
further they will restrict the loan advance to a low loan to project cost ratio
which will preclude many developers from taking on a project as they are unable to raise their own cash input.
The good news however is that away from the high street there is a significant
and growing number of new lenders in the UK who will take a far more
entrepreneurial approach to property development funding including
Refurbishment projects and who will support a broad range of both Residential, Commercial and Mixed Use projects across England, Wales and Scotland.
Lending decisions in this sector of the market are made primarily against the
quality and the perceived demand for the end product to be developed. Other key criteria include the experience and financial stability of the borrower and the
credentials of any proposed main contractor to be used on the project. The real
benefits for the borrower in getting access to such funds is the speed of
decision making – decisions in principle generally within 24 hours and the
amount of the overall advance – generally 50% of the site cost provided and up
to 100% of development funding. Once the loan terms are agreed the speed to
complete the process is again far quicker than normal with advances available
in 2 to 4 weeks dependent on how quickly the legal aspects can be completed.
The general limit of funding provided on an Interest Only facility will be
circa 65% to 70% of the Gross Developed Value (GDV). This limit would include any allowable fees to be added to the loan along with the interest cover which will ‘roll up’ and be added to the loan during the course of the development. If a client can demonstrate that the loan interest could be serviced then this will make a positive impact on the level of the loan achieved and in certain circumstances the loan can be increased if additional freehold property is made available as additional lender security. For most projects the normal loan term will be between 9 – 24 months including an agreed Marketing phase upon completion of the build.
As one might expect the fees and rates will not be at High Street levels but ,
depending on the key criteria applied , loans are currently offered from 7% above Bank base Rate with fees circa 2% to 4% of the loan amount. Loans are generally available from a minimum level of £50 K up to £25 Million for the larger developments.
The quick acid test to establish if your project is supportable for property development finance:
Is there a demonstrable demand for the end product in the proposed
location ?
Have you got previous property experience or do you propose to use an
established Main Contractor ?
Do you own the site or do you have 50% of the site purchase price
available ?
Does the overall loan requirement sit within 65% to 70% of the Gross
Developed Value when the project is fully complete ?
If Sales become delayed on completion would there be an opportunity to
let the property and re-finance on to a longer term mortgage