Despite everything that’s currently going on in the world and the battering that the UK economy is taking. June 2020 was a busy month for Development Finance Loan enquiries.
What’s been particularly interesting is the mixture of Property Developers that have approached Orchard Business Finance to assist them in raising finance to purchase and develop residential sites.
We are seeing a lot of new entrants into the market who are looking to purchase property at Auction or are canvassing their local areas for properties prior to them being listed by estate agents. The focus of these Developers is to purchase properties under market value, complete renovations and sell the property. The financing requirements vary significantly dependent on the funds that the Developers have available. However, we are seeing funding requirements that range from £45,000 to £135,000 plus additional funds to complete a refurbishment. In most cases we’ve looked at bridging finance to help secure the property and additional funds. It’s not always possible to raise 100% funding but in certain circumstances this has been possible. To achieve 100% funding the lenders will use other security and, in some circumstances, lend against the market value of the property and not the purchase price.
More established Property Developers are looking at stepping up their activities and taking on larger schemes and ground up developments. The developments being presented to us have land/property purchase prices of circ. £500,000 and the development costs range from £500,000 to £1,500,000 including costs. These Developers in many cases don’t have assets of a high enough value to offer up as additional security or available cash reserves to offer a deposit of 30% to 35% on the land/property purchase. As a result, the traditional Development Finance Lenders find these schemes unattractive as the financial risk profile is to high. That doesn’t mean to say that these schemes can’t be funded, they can via a Joint Venture Partner. A Joint Venture Partner will introduce up to 100% of the land/property purchase price and development costs but they do like to see some ‘skin in the game’ from the Developer. Therefore, you might need to introduce 10% of the costs or offer some additional security. A Joint Venture Partner will normally charge interest on the funds that they introduce in the same way that a lender would. Then on completion of the development any profit that is made from the sale of the development will be split with the Joint Venture Partner.
Established Property Developers are approaching us with some fantastic schemes that include luxury apartment developments in city centers through to multi property housing developments. These developments require significant funding and in most cases these Developers have funds that they can introduce therefore de-risking the scheme for the lender. The lenders that we are approaching to fund these schemes include High Street Lenders and Specialist Lenders who are comfortable funding such schemes.