Borrowing more during the build

How does BuildStore get the lender to release more than they normally would during the build?

BuildStore has developed a scheme called the Additional Cashflow Benefit scheme which is accepted by the lender and which gives them additional protection over and above the security they have from your client’s land and build project.

It is this additional security that enables the lender to release money to your client earlier in their project and give them positive cashflow during the build.

How much more will the lender lend during a project?

BM Solutions standard terms for self build mortgage customers are lending of 75% on land and 75% on the cost of the build with stage payments released during the build at the end of each stage.

However, the additional security that the Additional Cashflow Benefit scheme gives them means that they will release 95% of the lower of the cost or value of land and 95% of the cost of the build with stage payments released at the start of each stage.

How do you work out the additional cashflow and how much can my client have?

Every self builder’s project is different and therefore everyone’s additional cashflow is different. BuildStore will provide your client with a “Costings Form”. On this form your client should put down a detailed breakdown of the work and costs of their project split into the various stages. From this BuildStore will be able to construct the cashflow they will be requiring for their project. When this cashflow is compared with what BM Solutions would normally release at each stage we can see where your client needs the extra cash and how much he will need. Note: it is extremely important that your client provides as accurate an estimate of their build costs and cash requirements as possible on this form as this is what the offer of loan from BM Solutions will be based on and will be what is released to them during the build.

The example below shows that while the total amount borrowed when the project is finished is £130,150, during the build, the advance stage payment mortgage is giving additional cashflow at each stage and the amounts of additional cashflow vary along with the costs of the stage. In this example the maximum additional cashflow required during the build is £36,025.

How much additional cashflow can my client have?

There is a limit on the additional cashflow your client can have. It is usually £85,000 but it is possible to have a higher amount. This would depend on their individual circumstances and on such things as how much of their own money they are putting into the project and what their other commitments are. Each case for higher cashflow is therefore considered on its own merits.

When does my client get the additional cashflow?

The answer is that they get it when they need it and that will be different for every self builder or home improver. When they need it depends on how much of their own money they are putting into the project and when. For example, if they already own the land they are building on it is likely that the additional cashflow will be required towards the end of your project rather than at the start. Likewise, people building timber frame houses tend to have need for additional cashflow early in their project when the kit has to be paid for.

Who does the Additional Cashflow Benefit scheme protect?

The Additional Cashflow Benefit scheme protects the lender in the event that your client stops paying their loan and the partially completed property has to be sold to repay what they owe to the lender. The protection that the lender receives is for the difference between what the lender would have lent your client under their standard terms and the higher amount that they have actually lent them as a result of the Additional Cashflow Benefit scheme.

Who pays for the Additional Cashflow Benefit Scheme?

The Additional Cashflow Benefit Scheme is paid for by your client. While the Additional Cashflow Benefit Scheme is to protect the lender, the borrower is getting a benefit by way of additional cashflow during the project.

What does the Additional Cashflow Benefit Scheme Cost?
The cost is determined by three things:

• The maximum amount of additional cashflow required during the project.
• Whether the case is self cert or full status.
• The amount being borrowed compared to the cost of the project.

To put it simply, the higher the additional cashflow and the higher the percentage of the costs of the project being borrowed then the higher will be the amount your client pays. The amount being borrowed compared to the cost of the project is an important aspect of the cost because the less of your client’s money that they are putting into the project the more likely there is to be a shortfall between the amount they have borrowed and what their partially completed project could be sold for in the event of default and repossession.

The following table shows costs:

The cost is based on the maximum amount of additional cashflow required during the project so in the example earlier where the self builder was borrowing 95% of the cost of the build and their maximum additional cashflow was £36,025; the cost of the Additional Cashflow Benefit would be £1,368.95 (£380 x 3.6025) (case assumed to be self cert).
Note: There is a minimum cost of the Additional Cashflow Benefit of £262.50.

How does your client pay the Higher Lending Charge for Additional Cashflow Benefit?

The cost of the Higher Lending Charge for Additional Cashflow Benefit is paid directly to BuildStore and not to the lender. Payment can be by cheque, switch or credit card (credit cards carry a 3% surcharge). Payments by switch and credit card can be made over the phone.

When does your client pay the Higher Lending Charge for Additional Cashflow Benefit?

The charge must be paid before your client completes on their mortgage. This will usually be just before they draw money to purchase your land or the building they will be renovating or improving. If they have not paid the charge, the lender will not release funds so it is important to ensure they pay it a reasonable time before they are looking for their first funds.