Our products cover a wide range of property lending across residential, commercial and development projects for property investors. This includes the whole spectrum of financing for refurbishment and development. It runs from support for smaller-scale work such as moving walls or adding modest extensions to far bigger extensions and larger-scale ground-up developments.
Defining a refurbishment versus a development
We make a clear distinction between refurbishment and development, based on whether or not the intended works include structural changes.
The reason for this is that when there are extensive development works, including more than a single-storey extension, the project becomes a lot more complex. In addition to our main credit team, we have a specialist team that reviews development deals. They have a strong understanding of the market and also work closely with quantity surveyors (QS) to ensure the scheme will be built within the anticipated costs and timescales.
Covering costs and creating opportunities
Once our development team receives the initial QS report, we feed the findings back to the borrower and discuss their options. Our QS is effectively a second pair of eyes checking the budget and the scheme to ensure everything has been accounted for.
This process becomes crucial in cases where the customer’s team may have produced a development appraisal with missing costs such as non-recoverable VAT, warranties, utilities, professional fees, party wall costs, building control costs, decontamination and surveys. In some cases, we find that a customer has not been advised correctly.
For example, a third party such as a construction company or QS may not have included costs for all elements. If we were to lend without all costs being built in, the borrower may run out of money half way through their development.
Our analysis, along with our quantity surveyor and asset manager, helps to ensure that costs are fully covered. It helps to mitigate the risks but can also reveal opportunities that a customer might not have considered, for example an option to offer a new-build warranty. The case study below gives a recent example of how we provided this kind of support.
Case study: funding the full development project
Application with inaccurate budget: A customer recently came to us with the intention of purchasing a detached house with a view to extending and converting it into four flats. They were experienced developers, having completed several similar and larger-scale schemes. As part of the loan application, they had worked with their own QS and put together a full costs plan within a development appraisal of £425,000 (all inclusive).
Analysis by our team: Our credit team completed its analysis, including a drawings review, and concluded that structural work was needed, making it a development rather than refurbishment project. Our specialist development team then took over the project and appointed a QS.
Extending the budget and building in value: Our QS, having reviewed the scheme, advised us that certain elements of the build had been excluded from the quote provided to the borrower. These included a new-build warranty, the VAT element on the refurbished part of the building, utilities connections, de-contamination costs and the costs of white goods. We quickly realised that £160,000 was missing from the budget, therefore the borrower would be left with a funding gap were we to approve only the originally requested amount of £425,000.
We built these missing costs into our development loan and also recommended that the customer consider a new-build warranty for the new-build element of the project. These are designed to offer buyers peace of mind that any defects in their home will be put right, and also tend to increase the saleability of the completed assets.
Support from loan to development to exit: We provided a development facility of £585,000 to the customer, covering the true cost of the development. We are now releasing funds in tranches as the customer proceeds with the project, and only charge interest on the amount drawn at any given time.
The developer has the assurance that they are fully funded through to completion, without the prospect of having to find additional cash for hidden costs. The interest is rolled and added to the loan to be repaid on completion. And with the warranty in place, the developer is confident that the completed scheme will sell smoothly.
With the capacity to assess and lend, we welcome applications whatever the project size or type. If you have a project for which you require funding – small or large scale, refurbishment or development – send us the details.
