Costs that are specific to London
London appraisals carry costs that can be much higher than elsewhere. Lenders will want to see them properly budgeted:
- The Community Infrastructure Levy, which in London includes both the borough charge and the Mayoral charge
- Section 106 obligations, which can include affordable housing, carbon offset payments and other contributions
- Party wall agreements, rights of light and neighbour issues on tight urban sites
- Site logistics such as hoarding, crane licences, parking suspensions and limited working hours
Affordable housing requirements, and whether a scheme meets the threshold for them, can make a large difference to gross development value. Lenders will want to see the signed section 106 agreement or a clear position on what it will contain.
High unit values and lender limits
London's unit values affect how much lenders will advance. Some lenders on our panel set a maximum value per unit, reduce the loan to value where the average unit value is high, or reduce leverage for single high-value houses. Others are comfortable with prime residential but expect experienced developers.
Lenders also look at absorption: how quickly the units will sell at the projected prices. A large block of similar flats in a busy development area may take longer to sell than the appraisal assumes, and some lenders have limited appetite for many flats in one city-centre location. Agents' reports with recent comparable sales help support the gross development value.
Building safety and taller buildings
Where a building is 18 metres or more, or seven or more storeys, with at least two residential units, it is a higher-risk building. Building control approval runs through the Building Safety Regulator, and work cannot start until it is granted. London Plan guidance and national rules also affect stair cores and fire strategy for taller residential schemes.
These requirements affect design, cost and programme, so lenders will want to see them reflected in the appraisal and timeline, with realistic time allowed for approvals.
How the facility works
Development lenders typically advance part of the land cost on day one and release build costs in stages after inspection by a monitoring surveyor. Loans are limited by a percentage of the gross development value and of total costs, and interest is usually rolled up and repaid from sales or a refinance.
Where leverage from a senior lender is not enough, stretch senior, mezzanine or joint venture equity may help. We compare lenders on appetite for your scheme, unit values and leverage, then approach those that fit with a clear case. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation and checks.
