The client: A couple of property developers, one of whom we met at last year’s Property Investor & Homebuyer Show at London ExCel. At the time, they were looking to start their first ever ground-up building project. Both are fully qualified accountants and have 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 instead. The flats would be built over four floors including a basement.
The finance: Since gaining planning permission, the value of the site had risen 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 and 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 terms, the lender was keen to meet with our clients to discuss the project in detail. We accompanied them to the meeting to help with the negotiations and ensure that all questionable points were adequately covered.
During the application process two issues came to light which we were able sort out 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 very small 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 show up to claim the land.
The lender subsequently made an offer for the full loan amount at a fixed rate of 7% - very good terms indeed and unlikely to be available for long! The interest due will be rolled up and paid when the project is complete.
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.
In order to exit the development loan towards the end of the build, the developers will decide whether conditions are right to sell the flats, or refinance on to buy to let terms.
Loan amount: £1,815,000
LTV: 60% LTV
Rate: 7% fixed
Term: 18 months
Total fees: £81,900
Consultant: Paul Keddy, 01732 471655
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28th January 2019