An £8.9 million senior development facility for 24 apartments in St Albans, Hertfordshire, arranged at 66% LTC and 62% LTGDV against a £14.3 million GDV over a 22-month term, with the build-cost contingency structured around where inflation actually bites and a dev-to-let refinance modelled with the lender as the fallback exit before the facility ever completed. Two exits are always better than one.
| Location | St Albans, Hertfordshire |
| Loan amount | £8,900,000 senior development facility |
| Gearing | 66% LTC, 62% LTGDV |
| GDV | £14,300,000 |
| Term | 22 months |
| Product | Senior development finance, staged drawdowns, monitoring surveyor |
| Exit | Open-market apartment sales, dev-to-let refinance modelled as fallback |
The situation
The client was a Hertfordshire developer with a string of completed schemes across St Albans, Harpenden and Hatfield, and a cleared site within walking distance of St Albans City station carrying detailed consent for 24 apartments, a mix of one and two beds. GDV was appraised at £14.3 million, an average a little under £600,000 per unit, supported by sold evidence from three recent schemes in the same postcode.
Total project cost came in around £13.5 million. Land at £5.1 million, build at £6.7 million, with professional fees, contingency and finance costs making up the balance. The developer was contributing £4.6 million of equity and needed an £8.9 million senior facility to complete the site and fund the build through to practical completion.
The demand case was straightforward to evidence. St Albans sits twenty minutes from St Pancras on Thameslink, and what we have seen on the commuter-belt apartment schemes we fund is a persistent stream of buyers priced out of London who want the fast line and a proper town, so well-specified one and two beds near the station sell to both owner-occupiers and investors without needing incentives. The scheme did not need a clever story. It needed the right structure.
The build-cost question
Build cost inflation has calmed down but it has not gone away, and on a £6.7 million contract over a 15-month programme the lender's first question was how much of the cost was actually fixed. We dealt with that before the case went to credit. The main contractor fixed the price on the frame, envelope and M&E packages, which carried most of the inflation exposure, and the contingency, set at a full 5% of build cost, was ring-fenced in the appraisal for the groundworks and provisional sums where the genuine unknowns lived.
My advice to any developer signing a build contract in this market is to fix the price on the major packages before you sign the facility, and keep your contingency for the ground, because a contingency that has already been spent absorbing steel and labour inflation by month six is no contingency at all. The monitoring surveyor tracked the contingency drawdown monthly, and at practical completion more than half of it was still unspent, which is how it is supposed to work.
Why the high street could not do it
The developer's bank offered a facility at a lower LTC with a pre-sales condition, requiring a third of the units under reserved contracts before the first build drawdown. Pre-sales conditions suit volume housebuilders selling off plan at scale, and on a 24-unit scheme they mostly mean discounting your best stock eighteen months before completion to satisfy a covenant. The developer had done exactly that on an earlier scheme with another bank and had no intention of repeating it.
We took the case to the specialist development market with the sales evidence, the fixed-price contract analysis and something the high street never asked for: a fully modelled fallback exit. My role was to show the credit team that if the sales market softened, the scheme worked as a rental block, and that piece of work changed the conversation about everything from gearing to the term.
The structure
The facility completed at £8.9 million, split as a day-one land tranche with build funding drawn monthly against monitoring surveyor certificates. Gearing sat at 66% LTC and 62% LTGDV, the facility priced in the high single digits annualised with an arrangement fee in the standard 1% to 2% range, and interest rolled up so the scheme carried no monthly outgoing across the term.
The 22-month term ran as a 15-month build plus a seven-month sales runway, with release pricing agreed on day one. The fallback exit was the structural point of difference. We modelled a dev-to-let refinance on the whole block at prevailing St Albans rents, one beds at around £1,400 a month and two beds at around £1,800, and the numbers showed the block standing as an investment at a sensible interest cover if the developer chose to hold rather than sell. More than half of the apartment schemes we arrange now carry a modelled rental fallback, and lenders have learned to like it, because a scheme with two credible exits is a fundamentally different credit risk from a scheme with one.
Nobody expected the fallback to be used. That is not the point of it. The point is that a soft quarter in the sales market stops being an existential problem and becomes a choice between two workable routes, and the lender priced the facility knowing that.
How it completed
First enquiry to credit-approved terms took twelve working days. Valuation and the monitoring surveyor's initial report ran concurrently over the following three weeks, with the rental appraisal for the fallback exit commissioned alongside the sales valuation rather than bolted on later. Legals took four weeks. Completion came a little over nine weeks from first enquiry, and the contractor started on site within a fortnight.
Drawdowns ran monthly against certificates for the full programme, releasing within a week of each site visit. The scheme topped out on programme, the sales launch came at first fix, and a third of the units were reserved before practical completion, at which point the fallback model went back in the drawer where everyone hoped it would stay.
The outcome
The £8.9 million facility completed at 66% LTC and 62% LTGDV against a £14.3 million GDV, with no pre-sales condition, a 22-month term with a proper sales tail, fixed pricing on the major build packages and the contingency held for the ground. The dev-to-let fallback exit, modelled with the lender before completion, meant the scheme was never one soft sales quarter away from trouble, and the sales market made the question academic anyway.
Frequently asked questions
What contingency do development lenders expect in 2026?
Typically 3% to 5% of build cost on a straightforward new-build scheme, and more where the ground conditions or the structure carry unknowns. Lenders also look at what the contingency is actually for: a contingency that will be consumed by inflation on unfixed packages gives no protection, which is why fixing the price on the major packages matters as much as the headline percentage.
What is a dev-to-let exit on a development facility?
A fallback exit where the completed scheme refinances onto an investment facility and is retained as rental stock instead of being sold. Modelling it at the outset, with a rental appraisal alongside the sales valuation, gives the lender a second repayment route and gives the developer a genuine choice at practical completion rather than a forced sale into whatever the market is doing.
What gearing can a developer get on an apartment scheme in 2026?
Senior development lenders typically fund up to 65% LTGDV and 70% to 75% LTC on residential apartment schemes, with stretched structures going further for experienced developers. This facility sat at 66% LTC and 62% LTGDV, full senior gearing supported by strong comparable evidence and a modelled fallback exit.
What happens if sales run slower than the appraisal?
With one exit, the developer negotiates an extension or discounts stock to hit the term. With a modelled rental fallback, the completed units can refinance onto a development exit or investment facility, repaying the senior lender while the units sell at full value or let and stay. Building that second route in from day one is far cheaper than constructing it under pressure at month twenty.
Do lenders require pre-sales on a scheme of this size?
High street lenders often do, commonly a quarter to a third of units reserved before build drawdowns release. Most specialist development lenders do not require pre-sales on well-evidenced schemes of 20 to 30 units, and on commuter-belt apartment stock a forced off-plan launch usually costs more in discounts than it saves in perceived risk.
Rates and terms quoted are indicative and subject to change. Actual terms depend on individual circumstances, the scheme, security and lender appetite at the time of application. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
We arrange senior development finance from £250,000 to £250 million plus across the UK, with the fallback exit modelled before your scheme reaches a credit committee rather than after the sales market turns.
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