At Castle Trust, we recently made a number of improvements to our offering – doubling our maximum loan size to £20m on loans up to 65% GDV and increasing our maximum GDV to 75% on loans up to £15m.
These changes have already generated a lot of new enquiries and it is the new maximum loan size that has sparked the most interest.
Much of this interest has come from larger regional developments and it has been apparent that local authorities around the country have been prolific in granting planning permission on schemes of 100+ units, presumably as a way of hitting their housing quotas.
- Castle Trust doubles maximum development loan size
- Castle Trust provides £13m to refinance PD conversion
- Understanding the value of mezzanine
A common stumbling block shared by some of these enquiries has been unrealistic expectations regarding the final sale value of the properties. For example, on one scheme, a developer stated that they expected to achieve a sale price of £380,000 for the high-end two-bedroom apartments they were planning on building. A desktop valuation of similar properties in the area quoted an achievable price as being £190,000. There are no prizes for guessing which of these two prices will be closer to the RICS Red Book valuation that is used for lending purposes.
Buyers may be prepared to pay a premium for a desirable area and luxurious fittings, but a 100% mark-up is beyond ambitious.
It is possible to make any figure work at the beginning of the process, but unless sale prices are realistic and largely aligned to a professional valuation, developers are ultimately setting themselves up for disappointment, or worse still, financial loss. So, it’s important to approach any scheme with a dose of realism.
Developers are positive thinkers – but the allure of greater returns can lead to inflated expectations and over-borrowing on a development that doesn’t turn out to be worth as much as had been anticipated. If the upside is eventually delivered then, of course, it’s great news for the developer’s profit margin. But, at the planning stage of any scheme, it is best to be pragmatic.