The client: A married couple who are the joint directors of a trading limited company which they established to carry out their own property developments. The husband has project management experience working for large construction companies. The wife is a self-employed architect.
The project: The couple planned to build a complex of one, two and three-bed flats and two retail units on land in London which they bought through the company two years ago. There is no mortgage on the land and they have spent the intervening time obtaining planning permission for the development.
They have also lined up a large construction company to carry out the build although the clients will be managing the project themselves.
Exit strategy: The clients plan to sell both retail units and four of the flats. They will retain and refinance the remaining flats with buy to let mortgages. This will be their first foray into buy to let.
The finance required: The clients were looking to borrow 100% of the development costs for this build. We had to find a lender that would be happy to lend on a mixed use development without buyers or tenants lined up.
To carry out the project the couple needed to borrow just under £1.7m (c£1.5m for the build and c£160k which they were raising against the unencumbered land). We approached a business development manager at a high-street lender which we know, from past experience, will consider financing projects of this nature subject to underwriting and specific scrutiny. The BDM felt that the project had legs, so we began working on a formal proposal.
The application process:
Both the husband and wife provided us with detailed CVs, full plans, a timetable and costings for the build which would support their loan application. We then worked closely with them to draw up a business plan in a format which we knew is preferred by the lender. This was supported by two years’ of accounts for the company, and both business and personal bank statements.
We then submitted the application. The underwriters were happy that the retail units did not have buyers lined-up because we showed that the deal worked on just the residential element of the project. Satisfied with all elements of the proposal, the lender agreed the terms outlined below. The funds on the development loan will be released in tranches subject to sign-off by the independent monitoring surveyor reports.
Before works: £1.4m
After works: £3.4m
Land loan: £160,000
Build costs: £1,582,000
Rate: Bank Rate + 4% (currently, 4.5%) term tracker
Term: 18 months
Lender arrangement fee: 2% of loan amount, due on first tranche draw down, 1.5% of loan amount on exit
Mortgage payment: Nil pcm – interest rolled up to be paid at the end of the term (or on sale/refinance of site)
Consultant: Paul Keddy, 01732 471655
27th February 2018