Development Finance: Common Terms & Definitions
Draw down refers to release of funds to the borrower on completion of a development finance application.
Gross Development Value (GDV)
Gross development value, or GDV, refers to the expected value of the development on completion of the works. GDV is calculated assuming a sale on the open market between a willing buyer, and a willing seller.
Loan to Cost (LTC)
Loan to cost (LTC) refers to the amount of loan offered by the lender, as a percentage of the total cost of the building the project. LTC is a key metric in a lenders decision to release funds for a project.
Planning gain, in development finance circles, relates to the uplift in value of a site caused by the granting of planning permission. As a rule of thumb, the granting of full planning permission often lifts the value of a site to around one third of the GDV.
Outline Planning Permission
Outline planning permission is a watered-down version of full planning permission. It is used to gain an understanding of whether a planning application is likely to be accepted at an early stage.
Less detail is allowed in an outline planning application. Once outline planning is granted, work can only begin on the site after the ‘reserved matters’, or the finer details are approved. Reserved matters approval can be approved using a ‘reserved matters application’.
Permitted development rules allow for work to be completed on properties within certain rules without the need for planning permission. The rules are known as ‘permitted development rights’ and are controlled by general planning rules controlled by Parliament rather than the local authority.
Building Regulations (Building Regs)
Building regulations related to the rules and policies that must be followed for most building works in the UK. Building regulations must be signed off for the majority of projects to be considered complete and fit for habitation.
A personal guarantee is a legal promise to repay the debt of a limited company in the event of default.
The facility fee, is a term used to describe the lender arrangement fee. Most lenders charge their arrangement fee on completion of the loan. Facility fees can usually be added to the loan.
A monitoring surveyor is appointed by most lenders to oversee the project from start to finish. They effectively act as the lenders eyes and ears to comment on the quality and relative risk of projects initially.
In addition to the work upfront, they will usually have responsibility for checking that the project remains on track, to spec and for approving further draw downs.
The net loan is the amount of money available to the borrower from the loan. The net loan is made up of the gross loan, minus any deducted fees and interest.
Second charges are a term used to describe a further monetary advance from a second lender, when there is already an outstanding mortgage/loan secured against the property.
A tranche payment refers to the staged release of funds used to fund property development.