An experienced developer approached us with a promising ground-up scheme near Kenilworth. The plan was straightforward: purchase a plot of land with planning approval and build two detached 5-bed houses with a combined GDV of £2.4m.
The borrower had secured the site through an option agreement and subsequently obtained planning permission for the proposed scheme. With three successful ground-up developments already completed since 2021, this was a natural next step in their portfolio evolution.
Then the valuation came back lower than expected.
Key Challenges and Solutions
Down-valuation impact on day one advance
The valuation came in below initial expectations, which directly impacted the day one advance under our originally agreed terms. For many lenders, this would mean asking the borrower to put more cash into the deal. We took a different approach.
We stretched our leverage to 70% LTGDV, higher than our standard parameters for ground-up development. This was possible because the fundamentals remained strong: experienced guarantors with a high combined net worth, a well-capitalised borrowing entity, and a contractor with 10 years of main contractor experience.
Creating a bespoke structure
The down-valuation created a cashflow challenge. The borrower now needed to contribute more equity to the project, but access to funds on day one was critical to complete the land acquisition.
We structured the facility to solve both problems. Rather than requiring all additional equity upfront, we deferred a portion of the contribution, allowing the borrower to inject it into the development post-completion rather than before. This ensured the acquisition could proceed without delay.
To manage the increased leverage appropriately, we structured a bespoke development loan. The borrower agreed to self-fund the first £100,000 of works, with our monitoring surveyor overseeing this initial phase. Evidence of funds and an elemental cost breakdown were required before works commenced.
This approach meant we could provide the leverage the deal needed while maintaining appropriate risk management. The borrower demonstrated commitment through their initial investment, and we provided the facility amount required to complete the scheme.
Validating the exit
With a GDV of £2.4m split across two plots, the exit needed to be robust. The valuer confirmed strong local demand with a reasonable sales period of 1-3 months. Our own research supported this.
The borrower also benefits from optionality: if market conditions require, they can pursue a blended exit strategy. Selling one plot while refinancing the other to BTL term debt would fully redeem the proposed loan.
The Outcome
We provided a £1.7m development facility to fund the purchase of land and ground-up construction of two 5-bed detached houses. The 18-month term allows 12 months for construction and 6 months for disposal.
Day one LTV sits at a conservative 51%, while the stretched 70% LTGDV reflects our commercial view on the deal strength.
This deal was delivered by Caimin Bugler, Credit manager and Jack Bruce, Relationship Manager.
"I greatly enjoyed working on this application, and supporting experienced developers take on their next scheme. This looks to be a great site with strong potential. I will keenly watch their progress over the following months." - Caimin Bugler, Credit Manager
