MFB worked with a new pair of property developer clients to help secure a £1.8m development loan for a new-build apartment building.
The Client
Having met at last year’s Property Investor & Homebuyer Show, MFB worked with a new property developer client to help secure development finance for a new-build apartment building. At the time, they were looking to start their first-ever ground-up building project. Both were fully qualified accountants, having made a hobby of developing properties to either sell on or let out.
The Property
With the help of a mortgage, the pair had purchased a bungalow for £520,000. They then gained full planning permission to demolish it and build a block of nine flats in its place. The building would span four floors, including a basement.
The Finance
Since gaining planning permission, the value of the site rose to £850,000, and to complete the project, the clients needed to borrow £1,815,000:
Construction costs: £1,107,950
Contingency: £110,795
Fees: £81,900 (lender, legal, monitoring surveyor, broker, etc.)
The Application Process
As accountants, it was clear from the outset that the pair had sound business acumen and proven research for the project. We could see from their plans that this would be a successful and profitable build. So, we helped them to put together a business plan and loan proposal in the format suited to the lender we had identified to be the best fit for their needs.
Before agreeing to terms, the lender was keen to meet with our clients to discuss the project in detail. We went with them to the meeting to assist with the negotiations and made sure that we adequately covered all questionable points.
During the application process, two issues came to light, which we were able to overcome for our clients to ensure success:
- A neighbour objected based on the right to light. We liaised with an independent monitoring surveyor who was instructed to find a practical solution. The neighbour’s affected window was found to be in a corridor and not a living space, so the surveyor was able to get the objection dismissed.
- It was spotted that a tiny strip of land going through the property was not part of the same deed, which meant that, technically, the clients did not own the strip. We helped the clients to arrange a report and title indemnity insurance policy which will protect them should anyone ever try to claim the land.
The lender subsequently made an offer for the full loan amount at a fixed rate of 7% - excellent terms indeed and unlikely to be available for long! The interest due was rolled up and will be paid when the project is completed.
The Solution
Funds will be drawn down in tranches, subject to sign-off by a quantity surveyor. The project is expected to be completed within 12-18 months. We will be keeping an eye on progress to ensure that the financing element of the project remains on track.
The developers have two options to exit the development loan towards the end of the build. They can either sell the flats or refinance them as buy to let properties.
Property Details
GDV: £3,045,000
Loan amount: £1,815,000
LTV: 60%
Rate: 7% fixed
Term: 18 months
Total fees: £81,900
Consultant: Paul Keddy, Senior Consultant Mortgage Broker, CB:PSB, CertBB&C
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