Continuation Property Development Finance

Arranging the right level of finance is the first step to a successful building development project. A careful costing of the work required will be essential to reassure a lender that your approach to the project is professional. You should be able to provide costs for each stage of the project, carefully broken down to cover every item and the labour required. 

But you will want to keep your borrowing to a minimum to keep your costs under control, and so maximise your eventual profits. This can lead to problems if your estimates don’t keep pace with the reality, and costs over-run.

Property owners can find that projects that they thought they had sufficient resources to cover mean major additional costs. 

Why do costs over-run?

You may have started on a project that you believed could be funded by your own resources - or have borrowed to buy land or property and to cover the work required. 

There are many reasons why property development might not run to budget. They might be minor. If you are redeveloping an old building, an unexpected rot problem can mean extra work and new joists and floors. However, they could be more costly if structural instability is discovered and bracing and underpinning is required - and much more costly again if demolition and rebuild is the only answer.

It is not just the unpredictability of old buildings that causes problems. On brownfield sites particularly, unexpected work below ground level can eat up money before a new build has even reached past the footings. 

You could even face problems if an archaeological survey on your land is ordered - you could be billed for the work and face months of delay with lenders to repay. 

Of course, you will always include a contingency within your initial costings, but when problems really arise, the contingency can be eaten up very quickly.

You can’t simply walk away from a building site when you have no funds to continue the work. The lenders who provided the initial funding will be ready to seize not just your abandoned project, but whatever other property you might have used to provide security.  

At Rangewell we can help provide a solution if your development project requires extra funding. 

Additional funding to deal with the unexpected costs

When you need additional funding for a development project, you could face high costs.

Lenders may be concerned by the fact your initial estimates were inaccurate. They will be wary of advancing further sums when there could be additional unforeseen problems ahead. 

At Rangewell, we can work with you to find the lenders who may be prepared to help, and to find those who can advance the funds you need for the lowest costs.

If you are already borrowing:

If you have already arranged a loan to fund your project, it may be possible to go back to your original lender to ask for additional funds. These may be provided at a rate comparable to that of the initial loan. However, in most cases, a solution such as a Second Charge Bridging Loan from another lender will be required, and costs may be higher.

A ‘first charge’ is the primary mortgage or other loan secured against the property - the loan you arranged to start the project. This takes precedence over all other finance secured against it, which means that it will be repaid first.

If there is sufficient equity in the property, however, then a ‘second charge’ loan could be secured against it. This will be a loan secured on the value of the property, structured as a short-term loan - but because your primary lender will be repaid first, the risk to the lender making a second advance will be higher - and the costs of the loan will be higher as a result. 

Second Charge Bridging Loans may be available from 0.85% per month and upwards. In addition to the monthly interest charges, the lender will usually charge an arrangement fee of 2% of the loan amount. Fees for inspections by valuers and structural engineers may be required.

If you have a project in hand without borrowing:

If you already own land or an existing building it may be possible to arrange Development Finance after the work has begun. A solution such as a Commercial Mortgage may not be suitable, despite the fact that it might offer the lowest costs, as the property will not be usable, and therefore mortgagable, once work has begun. 

However, the value of the property you already own will make it possible to provide other types of suitable funding.

For light and heavy refurbishments, you might want a 'Refurbishment Bridge’ finance option, which funds 6–24 months of building costs and may include the option to convert into a mortgage once work is complete and signed off.

For larger projects, a Property Development Loan may be required. These may cover 50 – 60% of the site/property value and up to 100% of the development costs, with stage payments available throughout the build. Loan terms are flexible from 1 – 12 months and arrangements with no monthly interest payments may be available.

How will you repay?

Monthly interest will be charged, but this can usually be added to the Second Charge loan, meaning there are no monthly payments to make. 

Repayment can be in several ways. Once the work is complete, a property can be sold, and all lenders repaid.

Alternatively, refinance of a completed property onto a Secured Loan or Commercial Mortgage might be possible. This will mean that the debt can be financed at a substantially lower interest rate. 

Why you need Rangewell to find finance for your projects

Any type of property development project, from light refurbishment projects that over-run to major new builds which have hit groundwater, can face additional costs.

If these costs can be fully identified and understood, and the initial costings for the project are sound, the chances of securing the funding required to save the project may be excellent. However, this type of emergency funding must be arranged on an individual basis.

This ‘continuation’ or emergency funding is only provided by specialist lenders.

At Rangewell, we work across the property development sector. Our team includes property development experts who can work with you to understand your needs and the potential of your project.

So if you believe you are going to run into a financial problem with your development, call us. The sooner you start talking to us to arrange the extra funding you need, the better the chances of getting your project back on track - and the less it can cost.