100% Property Development Finance still available during the Credit Crunch

At a time when so many property commentators are highly negative about the prospects for the UK housing market it is somewhat surprising that it is still possible to raise up to 100% of purchase and development costs for property development projects. The lending organisations in question pride themselves in being real property development experts unswayed by the mass hysteria sweeping much of Fleet Street today.

They know that there is still demand for the right mix of housing stock and there are buyers that still qualify for mortgages to purchase them.
They are property professionals determined to support the entrepreneurial developer and the consumers that badly need new housing.

So just what is 100% property development finance?

Unlike traditional development funding all of the funds for acquiring the property/land and building/refurbishment are provided by the lender.

Funds are provided either via 100% debt, mezzanine or equity in combination with primary lending sources.
No deposit contribution is needed by the developer in contrast to the traditional 30% deposit requirements for both acquisition and development funding.

Instead of servicing the interest payments all interest payments are rolled up until the end of the project where the properties are either sold or refinanced. Clearly this type of lending is not provided by charitable organisations so the rates are more than twice as expensive as traditional sources. So there clearly has to be good profit and equity tied up in the project for these rates to provide good returns.

How has the credit crunch affected this type of specialist development fundraising?

One of the challenges in the market currently is raising funds for large developments of flats outside of London. Unfortunately there have been disproportionate planning approvals for apartment building in many city centres around the country at the expense of family houses. However well thought through development proposals that can be backed up by independent surveyors valuations are still being supported.

There often has to be enough tolerance within deals to be able to cope with at least 10% devaluations by surveyors responding to the negative sentiments and trends in the market.

Lenders in this difficult market clearly have to be more careful regarding the capabilities of the developers they choose to back. They are now much more likely to support a developer with a track record than someone new to the industry for obvious reasons.

Deal structure and conditions

For 100% debt deals final debt to GDV ratios needs to be no greater than 75 -80%
Lenders prefer to see some financial commitment from borrowers even if only to cover the soft costs of legal and professional fees associated with the build.

How Diverse Finance support your development ambitions

We help you understand whether your particular deal fits the criteria for 100% funding. We’ll help present your deal in the language required by our funders, project manage and negotiate the terms of your deal to do whatever we can to maximise your returns.