Development Finance in Leicester
Development Finance in Leicester
How it works
Development finance is structured around two figures.
Gross development value. What the finished scheme will be worth. Most lenders will fund to a maximum of around 65% to 70% of GDV.
Total cost. Land plus build plus professional fees, finance costs and contingency. Lenders will typically fund a smaller share of the land and a much larger share of the build.
Your own contribution generally goes into the land. The build is funded in tranches, released as a monitoring surveyor verifies work completed on site. You pay interest only on what has been drawn, which keeps the cost down — but it means you need working capital to reach each verification point.
What lenders assess
The scheme
Planning status, build cost, programme, and whether the end product suits the local market. A scheme of four-bed detached houses in an area that mainly sells two-bed terraces is a harder sell than the numbers alone suggest.
You
Development lending is experience-led. Lenders want to see completed projects of comparable scale and complexity. A track record is worth more here than in almost any other type of lending.
The team
Contractor, architect, quantity surveyor. A credible professional team materially improves terms, particularly for a less experienced developer.
The exit
Sale or refinance, evidenced. If you intend to retain and let the units, having the term facility agreed in principle strengthens the case considerably.
Planning
Most lenders want full detailed planning permission in place. Some will fund land with outline permission, or even without, but at much lower loan to value and materially higher cost.
Planning across Leicestershire sits with the relevant local authority — Leicester City Council within the city, and the district and borough councils across the county. Requirements, policies and local plan positions differ between them, and they change.
Confirm the planning position directly with the relevant authority before you commit. We fund schemes; we do not advise on planning.
Where Leicester development happens
Infill and small residential
Individual plots, garden land and demolition-and-rebuild across the city's suburbs. The bread and butter of small-scale local development.
Conversions
Commercial to residential remains common along Leicester's arterial roads, where upper floors above shops are converted to flats. Barn and agricultural conversions across the county are another regular category — attractive end product, but often more complex to build and to value.
Larger residential schemes
Around the city's southern and western edges, and the market towns. These need a track record and a properly costed appraisal.
Refurbishment
Where work is too substantial for a mortgage but short of ground-up building — sometimes better funded by a bridge with a refurbishment facility than by full development finance.
Costs
The total is significant. It belongs in the appraisal from the beginning, not as an afterthought — and so does contingency. A scheme that only works at best-case build cost and best-case sale price is not a scheme, it is a hope.
- Interest, charged monthly on drawn funds
- Arrangement fee, normally a percentage of the facility
- Exit fee, often calculated on GDV rather than the loan
- Monitoring surveyor fees for each site visit
- Valuation and legal costs for both sides
Planning conditions and contributions
Two costs that sit outside the build and regularly get missed from an appraisal.
Section 106 agreements. Larger schemes may carry obligations attached to the planning permission — contributions towards affordable housing, education, highways or open space. These are legally binding, often payable at defined trigger points during the build, and can be substantial.
Community Infrastructure Levy. Where a charging authority has adopted one, CIL is calculated on floorspace and is payable on commencement. It is not negotiable in the way a Section 106 sometimes is.
Both vary between the authorities across Leicestershire, and both must be funded. Lenders will ask about them, and a scheme that looks viable before these obligations can look quite different afterwards.
Confirm the position with the relevant planning authority and get the figures into the appraisal at the outset, not once work has started.
Getting the appraisal right
The most common reason we decline to take a case forward is an appraisal that does not survive contact with reality: build costs at optimistic rates, no contingency, a sales programme assuming everything sells at once, and finance costs understated.
Bring us the numbers early, including the uncomfortable ones. It is far better to find out a scheme does not work before you buy the land.
Speak to a Leicester development finance adviser
Bring your appraisal, your planning position and your track record. We will tell you what is fundable, at what cost, and where the numbers need work.
Call 0116 277 7536 or book a free consultation.
Cedar House, 3 Broad Street, Enderby, Leicester, LE19 4AA.
Common questions
How much of a development can be funded in Leicester?
Lenders typically fund up to around 65% to 70% of gross development value, or alternatively a proportion of land cost plus most of the build cost. The land is usually where your own money goes; the build is more heavily funded, released in stages as work is verified.
How does staged drawdown work?
Funds are released in tranches against completed work rather than as a lump sum. A monitoring surveyor visits, confirms what has been built, and the next tranche is released. You only pay interest on drawn funds, which keeps the overall cost down but requires working capital between draws.
Do I need planning permission before applying?
For most schemes, yes. Some lenders will consider funding land purchase before permission is granted, but at much lower loan to value and higher cost. Full detailed permission produces the best terms. Confirm the position with the relevant Leicestershire planning authority.
Do I need previous development experience?
For anything beyond a modest refurbishment, usually yes. Lenders want to see completed projects of comparable scale. First-time developers can secure funding, particularly with an experienced contractor and a strong professional team, but expect a larger contribution and closer scrutiny.
What is the exit on development finance?
Either selling the completed units or refinancing onto a term mortgage — often a buy to let or portfolio facility if you intend to retain and let them. Lenders assess the exit before agreeing the facility, so have the end position planned before you apply.
How is development finance priced?
Monthly interest on drawn funds, plus arrangement and exit fees, monitoring surveyor costs, and legal fees for both sides. It is considerably more expensive than a mortgage, which is why the appraisal must work with contingency built in rather than at best case.
Related
Important information
Development finance is not regulated by the Financial Conduct Authority.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR LOAN.
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