£4.6m Development Finance for 12 Houses in Wimborne, Dorset

The situation

The client was a Dorset developer with seven completed schemes behind him, most of them in the six to fifteen unit range across east Dorset and south Somerset. He had exchanged on a site on the edge of Wimborne with detailed consent for 12 houses, a mix of three and four bedroom family homes, with completion of the land purchase tied to the development facility. GDV was appraised at £7.4 million, supported by sold comparables from Colehill and Merley within the previous twelve months.

Total project cost came in just under £7 million. Land at £2.35 million, build at £3.85 million, with professional fees, contingency and finance costs making up the balance. The developer was contributing around £2.4 million of equity and needed a £4.6 million senior facility to complete the land purchase and fund the build through to practical completion.

The demand story wrote itself. Wimborne pulls a steady stream of families out of Poole and Bournemouth for the schools and the space, commuting back down the A349, and what we have seen across the Dorset schemes we fund is that well-priced family stock in the market towns sells faster than equivalent stock in the conurbation, because the buyers are moving for a reason and they have usually already sold.

The nitrate neutrality condition

The consent carried a condition requiring nutrient mitigation to be secured before the scheme could proceed, because Wimborne sits within the Poole Harbour catchment where Natural England's nutrient neutrality advice applies. In plain terms, the developer had to buy mitigation credits from an approved scheme and evidence the purchase to the council before the houses could ever be occupied, and no development lender will fund a scheme whose exit depends on a condition that has not been priced, contracted and confirmed.

Nutrient neutrality has stalled more Dorset schemes over the last few years than build costs have. The credits are a real cost line and the supply of them comes and goes, so my advice to any developer working in the Poole Harbour or Somerset Levels catchments is to get the credits contracted and the council's written confirmation on file before you approach a lender, not after, because a facility priced against an unresolved nutrient condition either does not get credit approval or gets it with a retention that strangles your cashflow.

Here we did that work up front. The client contracted the credits through an established mitigation provider, the council confirmed the mitigation satisfied the condition, and the confirmation went into the lender pack alongside the appraisal, so by the time the case reached credit committee the condition read as a settled cost rather than an open risk.

Why the high street could not do it

The developer's own bank had funded two of his earlier schemes and offered to look at this one at a lower LTC, capped well short of what the project needed, subject to the nutrient position being resolved to the satisfaction of their internal planning review. That review had no timescale attached. The land contract did.

Clearing banks are slow on development risk at the best of times, and a catchment-area planning condition is exactly the kind of thing their credit process cannot price, so it defaults to no. The specialist development lenders who write Dorset and Hampshire schemes every month have seen dozens of nutrient conditions by now and treat a contracted, council-confirmed mitigation purchase as a line in the appraisal. My role was to present it that way, with the credit contract, the council confirmation and the consultant's tracker all in the pack, so the lender's credit team could see a resolved condition rather than a planning question mark.

The structure

The facility completed at £4.6 million, split as a day-one land tranche to complete the site purchase with the remaining build funding drawn monthly against works certified by the monitoring surveyor. Gearing sat at 66% LTC and 62% LTGDV, sensible levels for a scheme with this depth of comparable evidence, and the facility priced in the high single digits annualised with an arrangement fee in the standard 1% to 2% range. Interest rolled up within the facility, so the developer carried no monthly outgoing during the build.

The 18-month term was built as a 12-month build programme plus a six-month sales runway. The developer asked for 15 months. We pushed it to 18, because a compressed tail on a development facility is how good schemes end up selling their last three units at a discount, and the difference in cost between the two terms was small against the margin protected. Nine times out of ten the assumption developers get wrong is the sales period, not the build period.

Sales repay the facility under agreed release pricing, so each completion clears slightly more than that unit's share of the debt and the balance falls ahead of pro rata as the scheme sells through.

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, with the surveyor reviewing the build contract, the cost plan and the programme before completion. Legals took a further four weeks, including the lender's review of the mitigation credit contract and the council confirmation. Completion came in just under eight weeks from first enquiry, inside the land contract deadline, and the developer started on site two weeks later.

Drawdowns ran monthly from month two. The monitoring surveyor visited site, certified work completed against the cost plan, and funds released within a week of each visit. The developer had used monitored drawdowns before, so the rhythm of it held no surprises, and the QS and the surveyor spoke directly to each other rather than through the lender, which is how it should work.