£2.1m Development Finance for Six Houses in Truro, Cornwall

The situation

The client was a Cornish developer on his fourth scheme, with three completed developments in the four to eight unit range across mid-Cornwall behind him, all sold through, all with the same architect and the same groundworks contractor. He had detailed consent for six houses on a site on the edge of Truro, a mix of three and four bedroom homes aimed squarely at working families, with a GDV appraised at £3.4 million against comparable sales from two recent schemes within the city's commuter belt.

Total project cost came to just under £3.1 million. Land accounted for £1.05 million, build for £1.7 million, with professional fees, contingency and finance costs making up the rest, and the developer was putting in a little over £980,000 of his own equity, most of it recycled from the profit on his last scheme. He needed £2.1 million of senior debt. His previous lender had pulled back from schemes west of Exeter, which is a pattern we have seen more than once, and his own bank offered a number that did not get close.

The Cornish planning wrinkle

The consent carried a heavier set of pre-commencement conditions than an equivalent site up country would attract. Surface water drainage strategy, highways visibility works, an ecology condition covering bats in an outbuilding due for demolition, and an archaeology condition, which in Cornwall is close to standard given the county's mining history. None of it was contentious. All of it took time.

What we have seen across Cornish schemes is that the discharge stage at the council runs slower than developers plan for, and a site that looks ready to start in the appraisal can sit for two or three months waiting for notices while the finance clock is already running, which is exactly the sort of cost leak that erodes a contingency before a spade goes in the ground. My advice to any developer buying with consent in Cornwall is to lodge the discharge applications the day the decision notice lands, not when the finance completes. This developer had done exactly that, and it showed. We were able to give the lender a tracker from the planning consultant showing every condition, every submission date and the council's written acknowledgements, so credit could see the conditions as administration in progress rather than open risk.

Pricing the appraisal for Truro, not for the coast

Cornwall's sales market has two gears. The coastal villages run on second-home and lifestyle money, and the working towns run on local wages, and the gap between the two has widened as the council tax premium on second homes and the principal-residence conditions attached to some newer consents have cooled the discretionary end of the market. Second-home buyers are not an exit strategy. This site sits on the edge of a working city, so we appraised it that way: values were held to what a Truro-employed family with a mainstream mortgage can pay, sales rates were assumed at one unit every six to seven weeks rather than the faster absorption the developer's coastal comparables might have suggested, and no premium was taken for the county's holiday postcode.

In my experience a conservative appraisal is the cheapest negotiating tool a developer has, because the lender's credit team spends its time testing optimistic numbers and tends to wave through cautious ones, and the pricing follows the level of comfort. The valuer signed off the GDV without a single challenge.

Why the high street could not do it

The developer's own bank offered 55% of cost, capped below £1.7 million, subject to all conditions being discharged before drawdown and priced no better than the specialist market. That left a funding hole of over £400,000 and a start date hostage to the council's postbag. Appetite for Cornish development among the clearing banks is thin, partly geography and partly the second-home headlines, and a six-unit scheme does not get the attention of a credit committee that also has £50 million files on its desk.

We took the case to specialist development lenders who fund the South West every month. Track record carried real weight here, three completed schemes with the same professional team is exactly the profile this end of the market wants, and the facility was agreed at 68% LTC with completion permitted ahead of formal discharge, on the condition that no build monies would release until the notices were issued.

The structure

The facility completed at £2.1 million, with a day-one land tranche of £1.0 million and the remaining £1.1 million of build funding drawn monthly against works certified by the monitoring surveyor. Gearing sat at 68% LTC and 62% LTGDV, and the money was priced in the high single digits annualised with an arrangement fee inside the usual 1 to 2 percent range, with interest charged on drawn funds only, which matters on a scheme where the build monies release over ten months rather than sitting drawn from day one.

The 16-month term was built as a ten-month build programme plus a six-month sales tail. The developer asked for fourteen months. We pushed him to sixteen, because a compressed tail on a part-sales exit forces discounting at exactly the moment the developer has the least negotiating strength, and the cost of two extra months of facility availability is small against the cost of shaving five percent off the last three units.

How it completed

First enquiry to credit-approved terms took ten working days. The valuation and the monitoring surveyor's initial report ran concurrently over the following three weeks, legals took another four, and the facility completed a little under eight weeks from first enquiry, with the discharge notices landing five weeks later and the first drawdown certified within days of them. Groundworks started in week fourteen from the original enquiry.

The exit ran as planned. Two houses were reserved off-plan before roof level, and each completed sale repaid the facility under agreed release pricing, with the final unit clearing the balance inside the term.