THE SCENARIO
Property development can be an exciting and lucrative endeavour, but financing development projects inevitably comes with a raft of challenges—especially for first time developers who are inexperienced in this arena.
My clients on this case were a married couple in their late fifties, working as a manufacturing consultant and in listed building restoration respectively. Having searched online for a suitable broker, they contacted me to explain their plans.
Using equity from their existing main residence, my clients intended to purchase a derelict telecommunication building, knock it down, and build a four-bedroomed house. The purchase price of the plot was £175,000 and they had intended build costs of £100,000, with a predicted gross development value of £450,000. However, with just £15,000 available in cash for the project, they wanted to take out a second charge on their home. Their main residence was valued at £140,000 with a first charge of £56,000.
As first time developers, their own refurbishment experience was on their own residential property. This can be very off-putting for development financers, who will generally look to see a track record of successful development activity. My clients were keen to do the majority of the work themselves, working along part-time contractors, instead of using a full professional team—this was not particularly reassuring for prospective lenders.
They also needed high loan to value (LTV) borrowing; their limited savings meant my clients required a second charge at 90% LTV on their main residential property to fund the new project.
OUR SOLUTION
Fortunately, I have worked on many cases such as this and felt confident I could arrange this for my clients. I was able to negotiate a high LTV with a bespoke lender who offered 95% LTV on their existing residential property. As arranging development finance is a specialism of mine, I knew which lenders which be open to working with inexperienced developers and approached them accordingly.
I was therefore able to arrange development finance for my clients at 0.75% per month, whilst also arranging a second charge over their primary residence at 0.99% per month. This enabled my clients to proceed with their development plans and take the first exciting step into the property development world.
