Case Study – Development Finance Herts
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Having bought a home years earlier with a large garden and potential for a new build additional property on a parcel of the excess land, our ‘yet to be’ client began calling around to secure competitive funding.
As with projects of this type, the structure of how this is undertaken is sometimes far more important than the finance facility itself in terms of potential savings.
The project required £1.2m for a ground-up development in the picturesque area of Hertfordshire, adjacent to the clients’ existing residence. Our potential clients contacted The Buy to Let Broker in the hope of securing the funds needed for the project, as well as additional funds to complete renovation work to the current family home, creating a combined GDV (Gross Development Value) of £2.6m.
Although very experienced property developers, the clients were unaware of quite how to structure the deal for maximum saving, prior advice had simply suggested clearing their existing residential mortgage with the new facility which would mean increasing borrowing by £0.5m, losing a very competitive residential mortgage and having to pay expensive ERCs (early repayment charges) and so sought further insights from a broker with extensive experience in development finance.
With an extensive background in dealing with all areas of complex bridging finance (as well as buy to let), adviser Matt Wright offered to help the clients in their pursuit of funding.
Matt’s solution was simple, he planted the idea of splitting title and moving the land to be built upon away from the existing title of the family home. This was recommended alongside tax advice from the clients’ existing advisers to ensure there were no issues with this course of action. This would avoid the need to repay the £500k Virgin Money residential mortgage which would save the client around £15,000 in ERCs – but significantly more important than that, it would mean that our clients could continue to enjoy their low rate on this weighty tranche and it wouldn’t be moved to a higher development finance rate (as suggested by others). There are other tax benefits to moving the land whilst the value is low. Please take specific tax advice for your circumstances. Matt suggested that the clients discuss with their existing lender about reducing the size of the garden as they would need to consent to such, in reality this was quickly accepted by the lender following a low cost valuation.
To add a bit more complexity, as some of the future funding would be needed for renovation work to the clients’ residential home, this meant that FCA (Financial Conduct Authority) regulations would apply and thus restrict the lenders that would consider that part of the deal, just another early hurdle to navigate but certainly not a deal breaker in this scenario.
Having helped countless clients with both development finance and complex bridging deals of this nature, Matt was confident that he could not only help the client secure the finance that they needed but could help them avoid significant unnecessary fees and greater loan sizes – so Matt worked hard on pinpointing a solution that would serve their long-term portfolio goals and maximise the savings potential.
After an initial call with clients’ tax advisers, it became clear that Matt’s potential clients would hugely benefit from splitting the title of the land needed for the project, thus allowing them to use development finance for the new build and keep their low rate residential mortgage intact.
Once this initial build was complete, the client would then have the option, by way of a cross charge, to raise further finance across both properties to get the renovation work on the residential property done. This entire finance facility would then be paid back in full – with the funds from the sale of the adjacent new build property.
Although creating more work for Matt and his case management team, this smart solution would allow the clients to carry out all of their plans in a cost effective manner and would avoid them having to pay the hefty ERCs and other charges from the existing mortgage, as well as losing the low rate to a significantly higher one.
On top of this, to ensure the client experienced no unnecessary delays to the project, Matt went the extra mile to ensure that the application was submitted before the split in title was completed, enabling the client to draw down the funds needed on the very day the title-split was legally achieved.
Using his advanced criteria knowledge, market experience and sheer dedication to deliver, Matt was able to secure the clients a very competitive development finance deal for the initial development with specialist bridging lender, Mint Property Finance.
This development work is due to complete in February 2023, when Matt will help the client secure the secondary finance needed to complete the final renovation work.
Delivering a great solution for all of the clients’ requirements, Matt helped the clients get the funding they needed to commence the initial development work, created a clear exit strategy for the development finance and even saved them well over 6 figures in the process by advising them to split the title, something which hadn’t previously been considered or advised.
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If you are looking for development finance for a complex project, give us a call on 08009499410 to discuss your options from a range of lenders. You can also request a callback by entering your details below.
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