How to finance development of a garden plot

One of the common questions we get asked is about how to finance a garden plot which has planning for a new build property. Do you sell to a developer or take on the project? If you take on the project and the build how do you finance the development?

The truth is, it doesn’t have to be complicated.

You won’t get a great reception from the high street lenders but there are plenty of options out there to finance this type of project.

Let me give you an example

Mr and Mrs Jones .own a house with a garden plot. The plot with planning is separated from the main house and is, therefore, unencumbered. The garden plot has planning consent to build a similar house to their own.

Land value £200,000

Build costs £200,000

End value £600,000

On this basis you could:

On day one release £100,000

The remaining £100,000 is released in tranches as the build progresses

Interest on the borrowing is rolled up, meaning nothing to pay as the development happens

Borrowing plus interest at the end of the build is £235,000

On completion Mr & Mrs Jones can either sell and make a profit or refinance the property, keep it and let it out

What do Mr & Mrs Jones need to do?

The simple answer is to cover the bits that make sense. A lender will want to see:

Copy of planning consent and drawings

Details of the contractor undertaking the build, the contract in place and their experience

Details of the warranty provider for the new build house

Details of the costings and timescales for the build

How you are going to exit at the development lending at the end of the build

In short, this is nothing that Mr & Mrs Jones won’t want to have covered off themselves and which most will have been addressed by the architect who did the plans.

Many clients, like Mr & Mrs Jones, think that you need experience, a track record, and that financing a development is complicated and difficult to do. It isn’t (it can be but we take care of that!) and is more feasible than many prospective developers realise.

If you want more details then get in touch.

By Dave Farmer

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.