Development and Refurbishment Finance
This is available to the property professional. Different products are available depending if the project is a ground-up build, or significant works to a property are needed, which would be development finance, or if you are reconfiguring, or improving an existing property, which would be refurbishment finance.
Refurbishment Finance
Loans are generally about £100K to £2m for 3 to 9 Months. Rates are general between 7%pa to 10%pa with no exit fees.
There are typically two ways of structuring a project
65%-75% of purchase price and 100% build cost
IF the total loan is not more than 60% to 65% of gross development value (GDV). Minimum loan £250k
Typical cost structure
- 2% bank arrangement fee added
- 0.95%pm interest
- No exit fee
- Interest added to the loan to a maximum 70% of GDV
70% of purchase and you fund the build costs
We can place 2nd charges on other properties to raise this to 100% funding for the purchase and build costs.
This is for light, heavy refurbishments and HMO conversions.
Typical cost structure
- 1.95% bank arrangement fee added
- They will lend up to 75% LTV, but the best rates are at 65%, or 70% LTV
- Light refurb at 65% LTV = 0.69%pm, or 70% LTV = 0.73%
- Heavy refurb at 70% LTV = 0.79%pm
- HMO conversion at 65% LTV = 0.81%pm, or 70% LTV = £0.85%
- No exit fees
- Term up to 24 months
- Higher LTV's are available with no increase in the interest, if other properties are used to provide additional security. This means that in you could raise sufficient funds to purchase a property with 100% funding and additional funds to cover all other project costs.
- We can ask for an end GDV valuation which should give you more comfort.
- You can exit on to term funding at 5% at 75% LTV and recycle all your cash out.
Development Finance
Loans are generally larger than £800K with limits specific to the applicant and their previous experience and banks have greater demands compared to refurbishment loans.
The different sources of development finance available are listed below:
High Street Lenders
- 55-65% of land purchase
- 55-65% of build costs
- Total loan cannot be more than 55% of Gross Development Value (GDV)
Pricing
1.5% arrangement fee; interest charged at 4% per annum and 1% exit fee of loan amount.
Need to show a strong track record, either directly, or as a joint venture with another suitably qualified party
Specialist Commercial Lenders
- 70-75% of land purchase
- 70-75% of build cost
- Total loan cannot be more than 65% of Gross Development Value.
These lenders tend to lend in the range of £500k to £10m – ideally, we need to see 3 similar projects completed in the last 3 years
Pricing
1.5% arrangement fee: interest charged at 7% per annum; exit fee is 1% of GDV
Private funders
- 80% of land purchase
- 100% of build cost
- Total loan cannot be more than 70% of Gross Development Value and 80% of total project costs, whichever is the lower
Can lend up to £50m and will consider larger projects, depending on who the applicant is and the nature of the project. Minimum loan size is £900k.
Pricing
2% arrangement fee; interest charged at 8% per annum; exit fee is 1% of loan amount
Although more expensive than the banks, these funders are quick and efficient and subject to few lending policy restrictions
Builder’s Fund
- 70% of land purchase
- 100% of build value
These funds come from a successful semi-retired builder so, if he likes the project, funding is quickly made available. Completion in 7 days is possible.
Pricing
3% arrangement fee; interest is charged at 15%pa; exit fee is 2% of loan amount.
Good for loans of less than £1M
Supporting paper work
Below is the standard list of information a bank would expect to see for a development deal.
We need an overview of the deal. This will include the following items:
- Full details of the property – address, sales particulars, photos
- How the property was sourced – estate agents, auctions, personal contact etc
- Outline of what you are proposing to do – as much information as available at this stage, so may include drawings and planning consents etc
- Source and amounts of cash contributions from the borrower
- Name of legal entity that is buying the property – details of all directors, shareholders and their percentages
- Experience of the directors – brief CVs highlighting any experience relevant to the proposed project
- Schedule of assets and existing properties owned by the directors/shareholders
- Purchase price
- Build costs
- Anticipated GDV
This information is usually sufficient to gain interest from a lender
Supporting information which is required, in order to obtain Heads of Terms from the lender
- Construction costs and cash flows
- Drawings - external and floor plans only at this point.
- If planning is required - planning application number and name of the Local Authority
- Proposed professional team (Project Manager; Main Contractor; Architect; Quantity Surveyor; Planning Consultant; Structural Engineer; Mechanical & Electrical Engineer; Landscaper)
- For each known member of the professional team: Address; web address; contact name; date established; relevant experience; number of Directors / Partners
Once we have acceptable HoTs we go to valuation.
What is book-end Finance?
This works for single unit developments, but particularly well for multiple unit developments.
When you are looking to purchase a property or land without planning in place, we can use bridge finance to secure the property to give you time to get the correct planning.
(Once the planning is in place you will need to refinance to development funding for the build. )
Once the build is complete, and the sales begin to progress, the development funder will require to be paid back in full before you have access to the profits. Bond can remortgage you to developer exit funding, which allows
- New term of 18 months - so you are not pressured to sell at lower prices than expected
- With each sale, you will receive all of the profits up to the original borrowing ratio of this end of the book-end funding
- You can capital raise, to move on to your next development
