£1.6m Property Development Loan for Modular Build Project
The Clients: a Limited Liability Partnership (LLP) consisting of two couples with equal 25% shares. They had been developing property together for over 15 years, completing six projects in the last decade and one of the partnership had more than 40 years experience in the building sector. Together they had a considerable amount of experience and knowledge.
The Property: the clients purchased an old commercial site very close to a large town in the South East of England, which had planning permission for eight terraced houses, one two-bedroomed detached property and a unit of three flats. All of these properties had an element of modular construction to them, meaning that a lot of the work was completed offsite and then ‘slotted together’. Modular builds are a relatively new form of construction that is growing in popularity.
The Finance: the clients had purchased the land using capital from the partnership and now required a large development loan to complete the planned works.
The Challenge: the clients had previously attained finance for their projects from the same high street bank and had assumed that this project would be no different. Having purchased the land, they had already instructed their team of experienced contractors to demolish the existing commercial unit and begin the groundworks needed for the new development.
Unfortunately, their usual bank was unable to provide such a large development loan due to the lending criteria. Now stuck with works underway and not enough funds to complete the development, the clients were directed towards Mortgage for Business for help.
We needed to source a lender able to provide the substantial £1.6 million development loan and be comfortable lending on a project that had already started. Many lenders will not consider lending on a development that has already begun as they are considered too high a risk.
We also needed a lender that included modular style builds in their criteria as it’s not yet always considered a standard build type, especially for residential units.
The Solution: after speaking to the clients about their previous property development experience, we checked with the Council of Mortgage Lenders (CML) that the modular style build type of the residential properties was mortgageable under their industry criteria. Assured that it was, we would be able to reassure lenders that the clients would have a choice of exits from the development finance; either sell off the development or refinance it.
Using our experience of the development finance lender market, we were able to approach a lender that would likely be able to provide the £1.6 million loan needed to complete the works. By demonstrating to them the clients’ previous property development experience and evidencing that the properties would be mortgageable under industry standards upon completion, meaning our clients would be able to secure an exit, the lender was happy to accept the finance application. With the development loan in place, the works could continue on the development, much to the relief of the clients. Here are the details: