In the pre-Credit Crunch days there were two essential ways to finance a development project, go with a bank who would usually lend up to 65% of the land value and up to 65% of the build costs drawn down in stages as the development progressed, or secondly go with a specialist lender who would lend up to 60% of the Gross Developed Value (GDV), often resulting in less input from the borrower and very often 100% of the build cost covered.

In the former case, it was great if you had the funds, most developers didn’t as their money was still tied up in the last development that was now being sold, in the latter case, these forward thinking lenders made development funding a much easier proposition.

Well we have the Credit Crunch, and a lot of the GDV lenders either closed their books (some of them having Icelandic parentage) or took a step back to see what the market would bring, and the high street banks just refused to sanction new deals at all, but would not announce to the marketplace that they no longer had an appetite for this sector. Out of all this however there remains some specialists who still know what they are doing and can still help with the smaller projects.

We are now 2 years on and after the spate of large developers shedding completed stock, by bulk sales or heavy discounts, and closing up other “in progress” sites after making them wind and water tight, we have seen a gradual return, as in certain parts of the country work is starting once again.

The lending climate has changed however, the GDV lenders are few and far between but will look at smaller residential deals (very few lenders at all are looking at commercial builds unless they are either pre-sold or pre-let to a reputable end user) up to say £5m. They limit their total advance to about 50 - 55% of the GDV and expect the developer to exhaust his own funds first before drawing on theirs. Interest rates are higher often as high as 9% p.a. and if the interest is to be rolled into the deal rather than separately serviced, the LTV limit has to allow for payment of these as well.

The banks are still there in a minor way but are not keen to lend in excess of 50% of the land costs, and a similar amount of the build costs and there will always be the need to jump through an extensive array of “hoops” first, so don’t expect them to be major players for quite a time to come.

If you have a development project you would like our input on do let us know by visiting our contact page and we can point you in the right direction.