Mezzanine Property Development Finance FAQs

• Who will you lend to?
• Which type of property developments are eligible for mezzanine finance?
• What is your maximum loan to value?
• Can you lend to property developers affected by the property crash/credit crunch and have CCJs, arrears, repossession or bankruptcy?
• Do you only lend to experienced developers?
• How fast can mezzanine finance be arranged?
• Is planning permission required?
• I had a valuation carried out recently - can you use this valuation report?
• Can you lend on unmortgageable property?
• Do I need to make monthly payments?
• Can I repay the mezzanine finance early?
• What is your arrangement fee and interest rate for mezzanine finance?
• Why are the interest rates high?
• Can't I borrow more cheaply by increasing my mortgage?
• What is your application process?

Who will you lend to?

We can arrange mezzanine property development finance for sole traders, partnerships, LLPs, UK limited companies, offshore companies, trusts, charities and for individuals who complete a declaration of business use or a statement of high net worth.

Which type of property developments are eligible for mezzanine finance?

We arrange mezzanine finance for all types of property developments:

Residential - new build, renovation and conversion. Houses, bungalows, flats/apartments

Commercial - new build - hotels, pubs, restaurants, nursing residential care homes, child nurseries, schools, professional practices, offices, retail parks, golf courses, mixed use schemes - and more.

What is your maximum loan to value?

There are no hard and fast "loan to values" with mezzanine property development finance. We do have general guidelines, but each development will be assessed on its merits, such as:

1. The type of development (e.g. residential, commercial, houses, flats etc);
2. The location of the development (prime locations can obtain higher levels of funding);
3. How profitable it is (the more profitable, the higher the possible loan);
4. Your experience as a property developer

In summary, it all depends upon the perceived risk - and how much of this you and the lender will take with your relevant financial stake in the project.

90% mezzanine property development finance is still possible for good quality schemes. To get an idea of the level of funding available for your development, have a look at our product terms & criteria page - or contact us with details of your development.

Can you lend to property developers affected by the property crash/credit crunch and have CCJs, arrears, repossession or bankruptcy?

This is a common question recently, and we're pleased to say yes, we can usually help. Mezzanine property development finance is usually agreed on a non-status basis. We lend against the value and profitability of the development. We can lend to those whose bankruptcy has been discharged, although not where the bankruptcy is undischarged.

Do you only lend to experienced developers?

Lenders always look to reduce risk; one way of doing this is lending to experienced developers who have proved they can complete a development on time and within budget. However, we can arrange finance for those who can demonstrate these skills plus relevant experience, such as architects, quantity surveyors, estate agents, building contractors or project managers.

If you have no relevant experience it is challenging to obtain funding in the current climate, however, if you have a substantial deposit (equal to 40% of total costs) and a strong professional team behind you, please contact us to discuss your requirements.

How fast can mezzanine finance be arranged?

We can usually agree an application in principle within an hour, which will be subject to valuation, legal searches etc. Completion of the loan is usually within 7-10 days, to tie in with the senior debt finance.

Is planning permission required?

No - we can finance all types of scheme: Outline Planning Permission / Detailed Planning Permission: These property developments can be financed on our usual terms. Pre-Planning / Planning Gain Finance: We arrange finance for experienced property investors/developers looking to improve/maximise the potential of a site, provided it is zoned for the proposed use and conforms with planning policy guidelines.

I had a valuation carried out recently - can you use this valuation report?

Possibly, provided that it is a full development valuation and appraisal carried out by a reputed chartered valuer. Most mezzanine property development lenders use a strict list or panel of approved valuers, so would need your valuer to be on their panel. Others can use any firm of valuers, subject to certain criteria. We may require specific information which is not in the original valuation report, so your valuer may charge a fee to retype his report.

Can you lend on unmortgageable property?

Yes, provided our valuer states the property is acceptable as security for the term of the loan. Many other banks and building societies are unable to lend against dilapidated or uninhabitable properties and withhold all or most of the loan until the necessary remedial work is carried out (known as a "retention"). Mezzanine finance can provide the additional short term funds required to get this work done.

Do I need to make monthly payments?

Interest is charged monthly, and you can choose either to pay this interest monthly, or have the interest added to the loan. The latter option will be more expensive due to the compound interest effect, but as mezzanine finance is a short term facility, this is not excessive.

Can I repay the mezzanine finance early?

Yes you can repay the loan early. Bear in mind that a charge may apply for early repayment, so if you are likely to require this facility, please advise us at outset and we will arrange the mezzanine finance with minimum early repayment charge.

What is your arrangement fee and interest rate for mezzanine finance?

These vary according to many factors, such as the amount borrowed, the LTV and term until repayment. Arrangement fee will usually be between 1-2%. Our lenders' return may be expressed in terms of a straightforward interest rate, or interest plus an exit fee based on the amount borrowed, sales proceeds or profits.

Please ask us for an individual quotation.

Why are the interest rates high?

We don't think rates are high when you compare like with like. Mezzanine rates should not be compared with senior debt, a first charge loan where the lender takes minimum risk. Instead, mezzanine rates should be compared with other short term loans, e.g. bridging or credit card, and equity finance where the lender is exposed to greater risk and needs reward for this. You pay extra for the higher gearing or lender's equity - which allows you to take advantage of an opportunity that you would otherwise miss.

We are 100% committed to giving our clients best advice. This means that if there is a better way of funding your property development without using mezzanine finance, we will tell you so.

Can't I borrow more cheaply by increasing my mortgage?

Good question! And as such it deserves a good (and detailed) response. Having been a fully qualified Independent Financial Adviser and Mortgage Adviser, regulated by the FSA for 17 years - and a specialist business and property finance adviser for the last 8 years - I speak from considerable practical experience.

First and foremost, bear in mind that a property development is a business project, which can take up to 2 years from planning, construction and marketing, until the properties are sold and you receive the proceeds. Many things can happen during this time to affect these profits. Without wishing to spread doom and gloom, I have unfortunately witnessed many property developers suffer financial hardship since the credit crunch of 2008.

So I would have to answer your question with this question: "Do you want to put your (family's) home, savings and other assets at risk throughout this process?" Your residential mortgage was for the purchase/improvement of your main residence - it is not designed to be used for business finance. Property Development Finance is a product designed for the purpose and has three important advantages over a residential mortgage:

1. You will not put your (family's) home at risk. The loan is secured against the development;

2. You need not put your other assets at risk. You can create a "special purpose vehicle" (SPV) to raise the finance and carry out the development through this limited company. If the development fails, your assets are safe due to the financial protection offered by limited company legislation;

3. The construction loan is released in stages, and as interest is only charged on the balance outstanding, this could work out cheaper than a further advance or remortgage of your home where interest is charged on the whole loan which is released from outset.

What is your application process?

We can usually prepare an agreement in principle with illustrative terms within 24 hours of initial enquiry. This will outline the requirements for a formal offer to be produced, such as professional valuation report, Quantity Surveyor report, sight of scheme drawings and planning consents, detailed financial appraisal and cashflow forecast (which we can prepare for you), and details of your professional team. We may also need to carry out a site visit with you. When we have all these details, a formal offer can be prepared and then it is down to your solicitor to complete the legal formalities. The whole process can take from 2 - 8 weeks.