We’ve recently seen an uptick in enquiries from property developers, many of whom have had an interesting ride (along with the rest of the world) over the last year. It’s often the case that borrowers turn to specialist intermediaries or brokers when there’s a shift in lender appetite as they look for more innovative solutions. Here we take a look at what we’re seeing in the funding market.
COVID impact on residential development
Despite the huge impact of COVID over the last year England’s planning departments have continued churning out planning consent at a healthy pace. Planning for 270,000 homes on sites with over 20 dwellings were granted in 2020, according to property experts Savills. While housing delivery fell 16% to 215,000 in 2020, the continued output of planning consents sets a positive outlook for the coming year.
Key funding metrics
While much of the property development finance market stalled at the beginning of the pandemic funders have bounced back quickly on the whole. The specialist funding market is seemingly as robust as ever as we are seeing approvals on terms similar to pre-COVID. While high street bank appetite remains limited to 50% Loan to Value (LTV) and Loan to Gross Development Value (LTGDV) on the whole, our panel of specialist funders are able to fund residential developments up to the following metrics:
- 70% LTV (against Day 1 value/purchase price)
- 100% build costs if required
- 70% LTGDV (Loan to Gross Development Value)
As always stronger candidates are those who can demonstrate through-cycle experience at developing similar schemes. Where experience is weaker then more conservative terms are to be expected.
Types of development finance
Development finance takes on various shapes and sizes. Typically we’d categorize it as follows:
1. Refurbishment – developing an existing building. Suitable for residential conversions or commercial to residential projects.
2. Finish & exit – funding part-complete developments. This product would fund the development to practical completion and then allow time to sell or refinance.
3. Development exit – where the project has got to practical completion but some time is needed to sell the property.
4. Ground-up development – where land is purchased and the plan is to build from foundations upwards.
