Community Land Trust Fund

Delivering Affordable Sustainable Housing
Context setting:

Lenders’ requirements

As a general rule, commercial lenders do not lend the whole cost or value of a scheme.  Similarly, mortgage lenders do not lend the full value of a home – they may have done so in the crazy times immediately prior to the credit crunch, but that is highly unlikely ever to recur.

The term Security Value is often misunderstood.  It is the value that a lender can expect to recover should the borrower default on a mortgage loan and the lender has to repossess the property.  Traditionally, this was seen as being a small percentage below the price of a new home, to reflect that if it were repossessed, it would by that time be second hand, and the lender would incur costs in selling it again.  However from the mid-1990s until 2007, house price inflation was at such a level and was sufficiently constant that that definition was forgotten or ignored.

The term Asset Cover is also used by lenders. This is a test to determine an organisation’s ability to cover its debt obligations with its assets after all liabilities have been met. In effect it determines if, in a worst case scenario, an organisation has enough assets that can be sold to repay its lending. Funders cover this issue by lending up to a set percentage of overall value of the development. This is called the Loan to Value percentage. Thus if the value of the site was £1m and the LTV percentage was 60%, the maximum debt that could be raised would be £600k.

Lenders will also be interested in an organisation’s Interest Cover. This measures if an organisation can meet its interest obligations out of nett income. At an Interest Cover of 1, an organisation can exactly cover its interest obligations out of nett income. It is usual for a lender to expect an Interest Cover to exceed 1 – the smaller, newer or less financially secure the organisation, the higher the required Interest Cover is likely to be.

It is usual for lenders to stipulate their desired level of Asset Cover and Interest Cover in the loan documentation. These are known as Loan Covenants.

Different lenders lend on different terms, such as the length of the loan, covenants required, etc.  A summary of current lenders’ requirements is set out next.

Funder and Contact

Type of Funding

Limits on Funding

Loan to Value

Indicative Interest Rates & Term

Other Comments

Triodos Bank

Mark Ogden

mark.ogden@triodos.co.uk

07789 986579

Development & Long Term Funding

£15m per borrower but will also look to lend on a syndicated or club basis with other lenders if the project exceeds this amount.

70% land value plus 70% build cost during development phase; 70% value on long term basis

Typically base +3%. Offer 25 year repayment loan, split with part 10 year interest only, converted to 25 year repayment on expiry.

Active in the sector and keen to lend.

Charity Bank

Carolyn Sims

csims@charitybank.org

Development & Long Term Funding

Schemes up to £2.5m or £3.25m if a RP. Can lend more in partnership with other lenders.

Project by Project basis up to 70% of end valuation. Work in partnership with other social lenders to provide.

Current rates 2.5% or more over base, depending on size and quality/strength of the deal.

Variable rate loan with maximum term of 25 years. Possibility to fix the rate for up to five years.

Active in the sector

Unity Trust Bank

Claire Trenaman

Claire.trenaman@unity.co.uk

07711412867

Development & Long Term Funding

Maximum £5m

Up to 70%

Between 2.5% and 4.0% above base.

Variable rate loan with maximum term of 25 years

Active in the sector

Co-operative & Community Finance

info@coopfinance.coop

Development funding on its own and in conjunction with other lenders. Maximum term 20 years.

Between £10k and £150k

3-4% above base with minimum of 6-8% depending on security.

Active in the sector – have worked in conjunction with Triodos and Ecology

Ecology Building Society

Jon Lee

jlee@ecology.co.uk

Development finance available subject to minimum ecological criteria.

Residential mortgages for restrictive covenant and shared ownership schemes available

Maximum loan is £1.5m

Up to 80%

Up to 90% of restricted sale price or up to 95% for shared ownership

5.75% for new CLTs

5.10% for established CLTs (minimum of three years history)

4.90% SVR less discounts for ecological specifications ranging from 0.50% for EPC B rated to 1.25% for Passivhaus

Active in sector, particularly regarding the creation of affinity residential mortgage packages for CLTs

Venturesome

venturesome@cafonline.org

ARizwan@cafonline.org

Provide Pre-development (pre-planning permission) and Development finance (post-planning permission).

Do not do Long Term funding.

Pre-development finance average is £30k; Development finance is up to £375k.

20-40% of the total amount required depending on the funding gap/ amount provided by the senior lender.

Pre-development finance offered at a 25% success fee (loan and success fee only repayable if planning permission is granted).  Development finance charged at 7.5% fixed (more expensive than a senior lender because it is the junior tranche).

Active in the sector – social investor that has been managing a dedicated CLT fund since 2008, providing finance and support.

All the funders approached stressed the importance of:

  • Having a robust business plan and project appraisal
  • Having a professionally run Community Land Trust with sufficient skills to give the bank comfort that the Trust is a good credit risk.

In addition the funders would expect to see periodic cash flow forecasts and management accounts to ensure that the CLT is operating in line with expectations.