Refurbishment Finance

Loans sizes range from £50K to £2m for terms of 3 to 24 Months. Rates are in the range of between 7% pa to 12% pa.

These loan are suitable for light refurbishments, heavy refurbishments and HMO conversions.

There are typically two ways of funding a project

1) 70% – 75% of purchase price and 100% build cost

If the total loan facility can be as high as 75% of gross development value (GDV).

Typical cost structure

–         2% lender arrangement fee added or deducted from the loan

–         0.95%pm interest

–         No exit fee

–         Interest added to the loan to a maximum 65 to 75% of GDV

–         The build costs are drawn down in pre-agreed stages in arrears

–         The lender will appoint a monitoring surveyor who will inspect the site at the end of each stage to approve the next stage drawdown. For some lenders the fee will be £2000 for the entire project and for others could be £300 to 1000 per visit. The costs are borne by you and are usually built into the loan facility.

2) 75% of purchase and you fund the build costs

(We can place 2nd charges on other properties to increase this to 100% funding for the purchase and build costs).

Typical cost structure

–         2% lender arrangement fee added or deducted from the loan

–         loans are available up to 85% LTV for a light refurbishment

–         for a heavy refurbishment 75% LTV is the maximum

–         rates from 0.65%pm

–         no exit fees

–         Term up to 18 months – in some cases 24 months 

In all cases your exit strategy is important, which is usually, sale or refinance.

Development Finance

Loans sizes tend to start from £200Kwith 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:

1. High Street Lenders

• • Max cannot be more than 55% of Gross Development Value (GDV)
    Or
  • Max loan to cost cannot be more than 55% to 60% (LTC)

  Pricing

  1.5% arrangement fee; interest charged at 3% over BOE 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

2. Challenger banks

• • Max cannot be more than 65% of Gross Development Value (GDV)
    Or
  • Max loan to cost cannot be more than 80% to 90% (LTC)

  These lenders tend to lend in the range of £2m to £35m – ideally, we need to see 3 similar projects completed in the last 3 years, but some lenders will accept sector experience – for example an architect doing his first project as principal developer.

  Pricing
  2% arrangement fee: interest charged at 6% over BOE per annum; 

  –      For loans over £5m the rate comes down to 4%pa over BOE, and loans over £25m, an even lower margin is charged.

3. Private lenders

There are many non-bank specialist lenders, competing for your business and even more than the high street and challenger banks, some are better to work with than others. These lenders can be far more flexible than the banks. For example, some will lend before planning permission has been approved. They are useful for smaller projects, although some welcome large projects

• Up to 75% of land purchase and 100% of build cost
  Or
• Total loan cannot be more than 75% GDV

No experience required, so an excellent choice for first timers, but a medium size main contractor on a JCT contact is required.

Pricing
2% arrangement fee; interest charged at 6% over BOE per annum; no exit fee.

4. Joint Venture finance

Some private lenders, will offer the same terms as above and if they like the deal, they will fund the deposited as well and then, on sale, the profits are spilt 50/50. If you have projects requiring 100% finance, run them by us and we will see if we can partner you up with a lender.

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

–         sources and amounts of your cash contributions and any secondary security you have to offer

–         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 & time line for the build

–         Anticipated GDV

–         expected rent – if refinance is the exit

This information is usually sufficient to gain interest from a lender to give indicative terms.

Supporting information which is required, in order to obtain credit-backed Heads of Terms from the lender

–         Construction costs and cash flows

–         Drawings – elevations 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 can instruct valuation and legals.

Developer Exit Finance

Once a site is nearly completed and sales are progressing, the development lender will take 100% of each sale, meaning the developer will not see cash funds until typically 2/3 of the site is sold, or until the entire site is sold if it is sold in one transaction. If they are looking to move on to their next project this will impact cash flow. This is where developer exit funding has its place.

Developer exit finance can be used to replace your developer loan and can often be at 75% of the open market value of the development (and not the lower 180 day valuation). If the development consists of several units, from each sale of each the developer gets 25% and the exit lender take 75%.

This helps cash flow greatly. It is also the case that this form of funding is often cheaper each month than the original development finance.

Part developed sites

Due to CV-19 many projects have over-run, and the development funder ramps up the rates as the loan moves into default. We can now obtain funding on part-developed sites and to fund the rest of the build.

Typically, we can get 72.5% LTV day one and 67.5% of the GDV, with rates from 5.99% over BOE pa.