Securing £650,000 Property Finance for a Builder

By Richard Mitchell

Content writer

Last update: 8 November 20211 minute read

Securing £650,000 Property Finance for a Builder

Development can mean high profits - but to achieve those profits funding will be required and there will be challenges ot overcome. At Rangewell, we recently helped fund a development with a total budget in the region of £650,000 - and a problem that could have made the whole development valueless.

When large sums are involved, lenders have to be cautious. Some may have a ceiling on the amount they can lend on a single project. Others may be reluctant to offer funding for certain types of development.

But the challenges don’t stop with finding the lenders who can say ’yes’ to your development plans. In-depth knowledge of the lending industry is vital to find the lenders who can provide the most competitive rates for specialised funding such as Development Finance. At Rangewell we have the necessary knowledge.

We recently helped an midlands-based builder find a solution to fund a medium scale development of four houses and two flats - which required a total of £650,000 funding.

In the current climate any loan may be difficult to arrange - and the developer realised that he would need help to secure the funding he needed at a rate which would allow him to retain sufficient profits.

“I found a brownfield site in fashionable suburban location. It was a set of garages that had been built around sixty years ago, serving some houses built around the same time. I saw the potential and had some plans drawn up which would let me put in tfour townhouses and two flats in their place. The only problem was the access, which was restricted to a single strip between two existing houses. But I was confident I could get plant in, and once completed, cars would obviously not have any problem. I could even increase the exclusivity of the development by putting on gates. ”

The local authority was happy to provide outline planning permission, and the client was able to negotiate a price for the land.

“Buying the land and building the homes would cost around £650,000 altogether. And I needed to find the funding - and of course I needed it to be competitive. I knew all about the challenges of building, but I was new to development on my own account - so I was finding the business of funding difficult. But then I heard about Rangewell, and asked them if they could help me - I was very glad I did - because without them things could have gone very wrong, and I could have lost a fortune.”

Property development finance is aimed at experienced property developers.

Property development loans are a type of short-term lending that at the lower end of the scale allows a developer to finance renovation or refurbishment of a property, and can scale up to fund complete housebuilds, and even entire new estates.

Property development is challenging, and most lenders will only lend to experienced developers, but there are those who can take a more entrepreneurial approach, and we saw that our clients status as an experienced builder would put him in very good steas. We were confident that we could find a lender who could help.

All lending is arranged on an individual, project-by-project basis. Projects fall into three broad categories.

Ground up development may be funded in a number of ways. The key point to remember is that his type of property funding is always arranged on an individual basis, and the lender will require details of every aspect of the project.

It was while we were collecting the paperwork for the application that we saw the problem.

The vendor had included a ransom strip.

What is a ransom strip

Aransom strip is a parcel of land needed to access an adjacent property from a public highway, to which the owner is denied access until payment is received. The strip of land can be either between the property and the highway, or be located between two properties. It will often appear on a search of the Land Registry Index Map as a thin section of land running along the boundary of a larger plot, in between private land parcels or between the private land and the public highway. The width can be as narrow as 15 centimetres – but the existence of a ransom strip can be a significant problem for a developer and carry large profits for the owner of the strip.Why are ransom strips retained?

If the land next to the ransom is granted planning permission for development, it will not be developable without crossing or acquiring the ransom strip. The ransom must therefore be purchased for the development to go ahead.

The owner of the ransom strip finds themselves in a position where they can hold the development ‘to ransom’– hence the name. It’s a serious problem for homeowners, property developers and corporations, as it means they risk a charge of trespassing when they enter or cross the ransom strip. If in doubt about the existence of a ransom strip, you can use the Land Registry website’s Search Index Map to see who owns which boundaries, and whether there are any disputes or property applications that may affect ownership.

Finding a solution

We looked at the deal that the client was looking for, and saw that his project was very viable - if the vendor could be persuaded to let the strip go. We talked to all the parties involved, and were able to negotiate on our clients behalf. We managed to persuade the vendor to let the ransom strip go for a small extra payment - it might be years before another buyer came along prepared to buy the main plot. The vendor wanted funds as soon as possible - and the lender would not proceed with the ransom strip in place, because it effectively made the site worthless.

Our expertise - and the ability to drill down into the details of the deal, and the expertise to negotiate a solution allowed the deal to proceed.

We arranged for the ransom strip to be included with the plot and the change of ownership registered with the land registry, effectively dealing with the problem in the shortest possible time.

The deal we arranged

We knew that many property development funders had shut up shop until the post-covid future became more clear - but we did know of one that might still be prepared to lend.

We approached them with full details of the project, and were able to get a positive decision.

We were able to negotiate funding at 6% - substantially lower than the developer’s only other quote - and to cover his entire lending needs. We were able to do this by providing a carefully structured deal.

This would provide a loan towards the cost of buying the site - in effect 60% loan to value. With the land as security, it would then be possible to provide a 100% loan to cover the cost of the building work, with staged payments.

The total funding advanced would be £650,000, with a 15 month term, with all interest to be rolled up and repaid at the end.

“The funding was exactly what I needed, and with the ransom strip sorted started work immediately. It looks as though we were right about the desirability of the project. The first 10 units have already been sold off plan, effectively covering the costs of the finance we took out - and letting us look forward to some very worthwhile projects with another 25 to sell.”

Why we were able to help

At Rangewell, we work with all the lenders in the UK market, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for an individual need.

We were able to secure the funding required by our client at just 6%.

£650,000 at 6% over 15 months

if you are ready to find better answers to your business funding needs contact the Rangewell funding hotline on 020 3318 2613

Getting the right deal for your development plans

Finding the right lender for your development project can be crucial to its success and profitability. That’s why it is important to speak to the Rangewell team without delay. Our team is made up of industry specialists. Whatever your line of work, we have someone who understands the challenges you face - and the ways to answer them.

Our term includes experts in property finance, and our service is personal. |It lets you talk to a property funding expert who understands your challenges sector to find a solution that is planned around your business needs.

We will discuss your plans, we can then call on our network of lenders, which includes virtually every name in the UK market to get the funds you need quickly.

And when the solution requires going the extra mile and out of the box thinking - you can rely on us for that too.

Just call us and one of our experts will be able to discuss the options, and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present. - and in most cases, our services are absolutely free.

To find out more call the Rangewell property funding team for an informal discussion on 020 3318 2613 or email contact@rangewell.com