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A £3.3m development, a strong commercial tenant and nearly £195,000 in annual income. On paper, it looked like a solid investment. So why was the developer facing an approximately £200,000 shortfall when trying to refinance?
In Episode 139 of the Prime Property Finance Podcast, Gareth Morgan and Mark Watts unpack a real mixed-use development case involving four residential flats and a ground-floor commercial unit occupied by a major supermarket brand. With a £2.45m development finance facility to repay, the challenge was not simply the property valuation. It was whether the income could support the mortgage needed to exit the loan.
In this episode, we discuss:
· How the £3.3m valuation was made up across the residential and commercial elements
· Why a strong tenant covenant and a low valuation yield can create a high capital value
· The difference between lending against development value and mortgage affordability
· Why a 5.88% gross yield and higher borrowing costs created a refinance problem
· How the approximate £200,000 funding gap arose
· The options considered, including injecting cash, selling, negotiating an extension, development exit finance and potentially selling the flats separately
· Why borrowing the maximum at the outset can limit options later
· How to stress-test valuations, rental income, borrowing costs and exit strategies before committing to a development
If you develop property, use bridging or development finance or plan to refinance and retain an investment, this case study highlights why a credible exit strategy matters as much as the funding that gets the project started.
If you are assessing development finance, a development exit or a mixed-use refinance, speak to Prime Property Finance about testing the numbers and exploring suitable funding options before the deadline becomes a problem.
Contact us now if you would like to know more
Disclaimer This podcast is produced by Prime Property Finance, an independent mortgage brokerage. The views expressed are for general information purposes only and do not constitute personal or financial advice. Listeners should avoid taking action based solely on the content discussed and are encouraged to seek advice tailored to their individual circumstances. The information shared reflects the personal opinions of the hosts and any guest speakers and does not necessarily represent the views of Prime Property Finance as a company. Prime Property Finance is not responsible for any losses or actions taken as a result of this podcast.
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