Residential development financing is hugely popular at the moment.
Especially to convert from commercial to residential use.
This new development financing loan could raise over 20% more cash against the property value.
In the past development financing for converting property to residential use would raise 65% to 70% of the value as the initial amount to purchase and complete the first phase of works. From this amount interest and fees are deducted – then a drawdown facility is put in place based on the GDV to do the work
This would net down to circa 60% to 65% in hand at day 1 – even less if the loan term was for more than 12 months.
How is the new development financing loan different?
Firstly, investors can now borrow up to 75% of the current value of commercial property to purchase / convert to residential.
Secondly, the interest element is on top of the 75% LTV – not deducted from the initial advance.
AND they can still then draw further funds to pay for the conversion based on the GDV
What does this mean to a developer?
It makes a massive difference to the amount of cash available to purchase or remortgage a commercial property with planning to convert it to residential use.
And, if extra cash isn’t needed, the additional money available could drop the loan in to a lower LTV band and therefore lower rates could be available.
Here’s an example or the new loan:
If buying a property valued at £1 million, Investors / developers could borrow £750,000 from which only fees and disbursements are deducted.
The interest would be added on to the loan granted (not deducted) subject to not the loan exceeding 75% of the GDV.
Therefore, on a 24 month loan, the interest could exceed £100,000 which is now available as borrowings instead
How does it compare with current products
Previously, a typical bridging / development loan on commercial property over say a 24 months period would be capped at 70% gross loan resulting in circa £610,000 being available as a day 1 drawdown.
NOW with this new facility at 75% LTV plus the interest added to the LTV the loan could provide a £750,000 day 1 drawdown.
That’s up to £140,000 extra cash on a £1 million valuation available at day one. Of course, if the term is lower, the interest is lower and the cash out benefit is lower. But the difference is proportional and still massive by comparison to other products
The Headline Criteria
The following terms are available for conversion of most commercial properties to residential use.
Change of use to semi commercial can also be considered with the main considerations being a minimum of 60% of the proposed conversion is residential and the commercial elements are not “smellies” (curry house, laundrettes, bakeries etc)
Where a property valuation has been uplifted due to the granting of planning content to convert to residential, the day 1 valuation and advance is based on the value with planning even if the recent purchase price was lower.
Some adverse credit can also be considered with acceptable explanations.
There is no age limit on the applicants
For Experienced Borrowers:
Borrowers must have experience of at least two ‘recent’ similar successful projects
Max 75% net day 1 LTV (net of interest but including fees)
100% works funded in arrears
Max loan term 24 months
Max LTGDV 75%
The max works costs lower of £1m or 70% of initial value
Max facility £2.5m
Rates (based on initial LTV): 0.59% at 60% LTV to 0.79% at 75% LTV
For Inexperienced Borrowers:
Borrowers that don’t meet the experience criteria but have suitable contractors/professionals in place to carry out the works
Max 70% net day 1 LTV (net of interest but including fees)
100% works funded in arrears
Max loan term 18 months
Max LTGDV 70%
The max works costs lower of £500k or 50% of initial value
Max facility £1.5m
Rates (based on initial LTV): 0.74% at 60% LTV – 0.84% at 70% LTV
All of these rates and terms are correct at the time of publishing
Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
Promise Money is a trading style of Promise Solutions Ltd – Company number 04822774Promise Solutions, Fullard House, Neachells Lane, Wolverhampton, WV11 3QG
Authorised and regulated by the Financial Conduct Authority – Number 681423The Financial Conduct Authority does not regulate some forms of commercial / buy-to-let mortgages
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.