There are some loan requirements that require a structured solution as well as using some ‘tricks of the trade’ as with this development funding in Northamptonshire.
The project comprised planning consent for five new build homes with accommodation ranging from one to five bedrooms and situated in an attractive conservation area. The experienced developer/contractors had a rare opportunity to create stunning cottage style new homes with stone elevations and a beautiful finish.
To reduce the client’s Day 1 cash equity requirement, we utilised a Sales Guarantee Scheme. This scheme guarantees up to 80% of the GDV will be received. Furthermore, the scheme releases a 10% deposit on Day 1 that the developer can use towards their equity contribution therefore reducing their own cash input requirement.
- Project Location: Thrapston, Northamptonshire
- Funding Type: Development Finance
- Facility: Around £1.95m
- Facilitiy Term: 18 Months
- Exit Route: Open Market Sales
- Security: 1st Charge
During the course of the loan application process, we did have some challenges that needed to be overcome and this is where having a strong market knowledge and a close working relationship with the lender is so important.
There was a renegotiation with the lender during the application process which meant implementing further solutions to minimise the clients equity input. These solutions included moving some of the margin from interest to an exit fee to increase the net Day 1 amount. Some of the development tranche was also moved into a time sensitive acquisition with this amount being paid back by the client before their first drawdown.
Development Funding in Northamptonshire Criteria
- Loan to Cost (LTC) – this can be as high as 100% where the return on GDV is over 28%
- Loan to Value (LTV) – can be to a maximum of 80%
- Facilities from over £25,000 to more than £50 million
- Maximum term typically up to 36 months
- Geographical area – UK wide but each lender will have their own preferred locations
- Development types – Each lender will have their preferred development types, sometimes only residential
- Experience – Many lenders will want to see a proven track record, but some will accept first-time developers (please note higher leverage options require suitable experience)
- Finance structure – Some lenders will accept 2nd charge equity, sales guarantee or mezzanine input
If any of the above terms are unfamiliar then you might like to read our article First Time Developer – Jargon Busting.