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The case of the back-garden property developers

Danny Robinson is the commercial director of TFC Homeloans.

When a couple with no experience decided to build a couple of houses in their back garden, finding funding wasn’t straightforward.

Development business is our bread and butter in the London office, and much of it is big ticket, often involving experienced developers.

But not always.

A recent case involved a couple who decided to build two properties to let in their back garden. They also happen to own the house adjoining theirs, which they let out to tenants.

The clients, based in Romford, are lucky to have a big parcel of land, which is currently in use as their back garden.

But they saw a more profitable use of their green space – and who can blame them?

The rental market in Romford is red hot at the moment, recently taking top spot in an index of UK buy-to-let hotspots, and it’s becoming very difficult to buy an investment property in the area.

The couple had already split the title in order to build two homes, got planning permission, found a builder and approached a broker for help funding the development.

Possible but pricey

The broker didn’t know much about development funding but the builder recommended a large well-known firm to lend the money. They agreed, but the rates offered were sky-high.

He didn’t know any other lenders who would accept the deal because the couple have absolutely no development experience, which makes lenders wary. Also, lenders often don’t like a client to have a buy-to-let next door to their residential property, and they don’t like a high concentration of buy-to-let properties on top of each other.

So, the case wasn’t easy but there were still specialist lenders who will do it – for a price.

Thankfully the broker contacted TFC to see if we could look at alternatives.

Cost slashed by two-thirds

We searched the market and took the case to a small building society where we have managed to get a development rate at 0.5% a month.

This is three times less than the rate the clients had been quoted by the large well-known firm.

The building society worked closely with us to underwrite the case, including asking for details of which building contractor was being used and their track record. After all, they would be doing the work, and have a lot of experience, even if the clients don’t.

Another thing in the client’s favour was the fact that they have already split the title on the land and got planning permission, so the land proposed for development has some inherent value. This means they can get a day one withdrawal of funds, instead of having to fund the initial stages of development themselves.

The clients now have a development loan over two years, with six months’ contingency built in and day one release of funds. Once built they intend to refinance onto two buy-to-let deals. All in all, a massively better deal than the one previously on offer, which will save them a fortune.

Like the clients, the broker in question didn’t have experience of property development. And why should he? You can’t be experts in every sector of the market and you have to focus on whatever is your bread and butter.

Luckily there are specialists, such as TFC, who can help you not only find funding for those complex cases, but secure the best possible deal for your client. That way they stay happy, remain loyal to you and the deal goes through smoothly and successfully.

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