In this recent case, Mortgages for Business had to locate a lender which was prepared to accept very low costs of just £65 per square foot.
Land purchase price: £781,000
Build costs: £2,631,000 + road and prelims £1,350,000
Gross development value: £6,061,000
Off-costs: None as affordable housing part of development
Loan facility: £1,250,000
Loan to value: 60 per cent of phase 1 GDV
Mortgages for Business has arranged a £1.25 million loan to develop a large plot on the edge of a Fenland town with permission to build 51 residential starter units.
The newly created SPV limited company made up of a property developer, a building contractor and a plant hire business was looking to build two and three bedroom houses including 18 affordable homes.
The site was being sold for £781,000 and the company agreed to purchase it from the vendor using stage payment during the first phase of development and funding was needed for that stage.
Phases 2 and 3 would be funded by the proceeds from phase 1 and Managing Director of brokers at Mortgages for Business, David Whittaker, said its client’s experience in the construction industry helped the process.
"The experience and other business interests of the clients meant that they had calculated the build costs would be just £65 psf which is extremely low – not a credible figure for some lenders,” he said.
“However, our clients were able to provide evidence that the project could be built for this price and on this basis we found a lender who was happy to finance Phase 1 of the build and make a contribution to the cost of the land.
“The lender agreed a facility of £1.25 million which would be repaid from the proceeds of the sale of the units in Phase 1. Phase 2 and 3 would also be funded from the proceeds of Phase 1."
Completion was delayed due to the incompetence of the client’s solicitor but after the client advised the solicitor that he would be ‘de-instructed’ on the project the problem was quickly resolved.
Phase 1 of the development is under way and the loan facility is being drawn down in stages while the homes will be ready for sale in the New Year.