£556,000 raised against land with planning

Our borrower owned an unencumbered site in Shropshire with detailed consent for two large houses. They had bought it in 2020 for £100,000, before planning. With consent granted, it valued at £1,125,000.

They weren’t ready to build it out. What they wanted was to release the value they had created in order to buy and refurbish a mixed-use property elsewhere — one held in a family trust, which would form no part of our security. The exit was a refinance of that property together with the one next door, already owned by the same trust.

Three things, any one of which is enough for most lenders to pass.

Bare land is the first. A consented site with nothing built on it is a security type much of the market declines on sight, and the historic purchase price is no guide to what it’s worth — the value here was created by the planning, not by the purchase.

The second was contamination. The site had been a builders’ yard until twenty-odd years ago, and the consent carried a condition requiring a site investigation report. At the point we were asked to decide, that report did not yet exist.

The third was that the money was leaving the deal. The funds were going into a property we weren’t lending on, and the exit depended on refinancing two properties we held no security over. An automated process has nowhere to put that.

We lent against what the consent had made the site worth rather than what it cost in 2020, and sized the facility at 49% of day one value. That leverage is the reason the rest of the judgement was affordable: at roughly half the value of a consented site, we could take a view on the parts that weren’t finished yet.

On the contamination, we didn’t ask the borrower to solve it before we would look at the case. The report was already being obtained to discharge the planning condition, so we made a satisfactory report a condition of drawdown and carried on with the rest of the underwriting in parallel.

On the exit, we underwrote it rather than declining it for being unusual. The borrowers were experienced — change of use, commercial-to-residential conversion, full refurbishments including listed buildings, and a track record of working with planning officers and conservation officers. The trust’s assets were real and the refinance was deliverable. We took a first legal charge over the site, a debenture over the company and personal guarantees from the directors, and had the company’s authority to borrow confirmed as part of legal due diligence.

£556,000 drawn on a fifteen-month term, with interest rolled.

Two of the three obstacles here were not credit problems. They were shape problems — a security that didn’t match the purpose, and an exit that didn’t match the security. A lender working from criteria has to decline that. A lender reading the case can price the risk and take a view.

Those are the cases worth bringing us.

*For professional intermediary use only. Breeze Capital is not regulated by the FCA and lends for business and investment purposes only. All lending is subject to status, valuation and underwriting.