Build, Then Hold: Cambridge & Counties Links Development Finance With Long-Term Lending

Finishing the homes does not repay the building loan. For a developer planning to keep the properties and collect rent, the next mortgage can matter as much as the finance that gets the site built.

Cambridge & Counties Bank has launched a development-finance proposition that brings those two stages into the same lending relationship. It offers facilities from £500,000 to £7.5 million, with a route into longer-term borrowing once the development is complete.

The feature likely to interest developers building rental stock is the ability to move into a term loan without paying a development-loan exit fee, provided they remain with the bank. That could remove one cost from a transition that often involves a fresh lender and another round of assessment.

It follows Willow’s coverage of Allica’s development-exit changes, which focused on completed homes awaiting sales. Cambridge & Counties’ announcement starts earlier in the project: funding construction while considering how the finished properties will be financed afterwards.

A lending relationship that can continue after the build

The launch reported on 2 November targets experienced residential developers and SME housebuilders. The bank’s own product information includes new-build schemes, conversions and refurbishment projects.

For a business developing homes to sell, the route to repayment is the sale proceeds. For a business building a rental portfolio, the development loan usually needs to be replaced with borrowing suited to an income-producing property.

That second strategy is where this launch has particular relevance. The developer can discuss the proposed long-term ownership with the construction lender from the outset, rather than leaving the rental refinance until the site is nearly finished.

Development Finance Today reports that clients will have a senior property manager acting as a single point of contact across projects and loan types. Keeping someone familiar with the site involved could make that transition easier to organise.

What the development facility offers

The bank’s development page also lists interest roll-up options and no non-utilisation fees. Rolling up interest can ease cash demands during construction, although the accrued interest still has to be covered when the loan is repaid.

One access point remains unresolved in the published material. The bank’s property finance team page still says development lending is only available to existing customers. Developers new to the bank should establish whether that restriction has changed with this launch.

Two lending limits determine the available funding

The 80% cost limit and 65% value limit measure different things. Both need to work for the same scheme.

Take a hypothetical development with £3 million of lender-recognised project costs and an accepted gross development value of £4 million. Gross development value, or GDV, is the expected value of the completed scheme.

Eighty per cent of the costs is £2.4 million. Sixty-five per cent of the finished value is £2.6 million. In this example, the cost limit is tighter, giving an illustrative ceiling of £2.4 million before any other lending restrictions.

Now suppose the accepted forecast for the completed scheme is £3.5 million. The 65% calculation falls to £2.275 million, making the value limit the tighter restriction. That is £125,000 less potential borrowing than in the first illustration.

These are simple appraisal calculations, not predictions of a valuation change. They show why a headline promise to fund build costs still needs to be read alongside the complete project budget.

The onward loan can be discussed early, but it is reassessed

The bank’s development-finance product guide provides a useful detail beyond the launch announcement: it can issue an indicative facility letter for the proposed longer-term loan.

That gives the developer something more concrete to consider while planning the build. However, the guide also says those indicative terms will be reassessed by the credit team at the end of the development loan, including the amount available and its pricing.

There is therefore a distinction between discussing the next facility from day one and having an unconditional mortgage waiting at completion. The finished property, its income and the borrowing required still need to support the onward decision.

For a developer, the value is in identifying a likely route early enough to influence the original funding plan. It should also expose a potential shortfall while there is still time to decide how to address it.

The rental income has to support the debt left behind

A development can have a healthy gap between construction cost and finished value while still needing more equity to become a rental investment. The long-term lender must assess the income as well as the security.

Suppose the amount required to clear a completed scheme’s development loan is £2.4 million, including the interest and charges due. If the approved term facility provides only £2.2 million net towards that repayment, the developer has a £200,000 gap.

Keeping the same bank involved does not make that gap disappear. It might require additional capital, a revised retention plan or the sale of some units, depending on what is commercially and legally workable.

Rental evidence belongs in the early appraisal for that reason. An optimistic estimate of what every home might eventually earn is a weaker starting point than evidence of achievable rents, realistic letting times and the costs of operating the properties.

Continuity could matter more than one waived fee

Moving lenders at completion can mean explaining the development again to a new credit team, arranging fresh professional work and coordinating repayment before the existing facility expires.

A lender already familiar with the borrower, the site and its progress may be better placed to organise the next stage. That is a practical attraction for a smaller developer managing contractors, final sign-offs and the first lettings at the same time.

It does not establish that valuations, legal work or updated checks will be unnecessary. The possible benefit is less disruption between the two facilities, with responsibility for the conversation staying in one place.

The quality of that continuity will depend on the agreed timetable. A discussion about the term loan several months before completion is more useful than starting it as the construction facility approaches its repayment deadline.

The full cost still spans two facilities

The exit-fee waiver should be kept in proportion. The bank’s general development terms list a 2% arrangement fee and a 1% exit fee; the new announcement describes the exit-fee concession for customers moving into term borrowing with the bank.

The product guide separately allows for an internal refinancing arrangement fee by negotiation. Staying with the bank therefore does not mean the next loan is free to arrange.

A meaningful comparison includes the development interest, fees and expected borrowing period, followed by the cost of the onward mortgage. A saving at the transition can be outweighed by a more expensive long-term rate, just as a slightly higher initial cost might be justified by a better overall structure.

Developers should also consider the cost of a delay. Extra construction interest and a later start to rental receipts can affect the result more than a modest difference in an arrangement fee.

A useful option for developers building an investment portfolio

The clearest application is an experienced developer who intends to retain completed homes, or a property company creating rental stock through a conversion or new-build scheme.

It may also be relevant where some units will be sold and others retained. That needs an agreed approach to sales proceeds and the release of individual properties from the lender’s security, alongside the mortgage for the remaining units.

Willow can compare the construction funding and the proposed onward borrowing together. For the developer, that brings the important questions forward: how much capital stays tied up, what rent the retained properties need to produce, and how the building loan will be cleared.

Cambridge & Counties’ launch adds another option for that discussion. Its commercial appeal is a financing relationship that can continue beyond construction, supporting a developer whose investment plan begins when the homes are finished.