For years, the idea of securing 100% funding for a property development project has been the stuff of myth. In the world of commercial to residential conversions, where costs can spiral and finding finance is notoriously tricky, a belief has emerged: you must have significant cash upfront. But for savvy property investors and developers, there is a powerful and legitimate strategy that can unlock 100% of project costs on Permitted Development schemes: the combination of stacked bridging and stretched senior debt. This isn’t a myth; it’s a strategic approach that can turn your development dreams into reality.
The Myth of the 100% Loan
Traditional development finance typically involves a senior debt facility that covers a portion of your project—often 60-70% of the land cost and 100% of the build costs. This still leaves you, the developer, needing to provide a substantial cash deposit. For many new or inexperienced developers, this is a major hurdle. The “myth” is that there’s no way around it.
However, the reality is more nuanced. With the right strategy and expertise, it is possible to leverage your assets and borrow the entire project cost, particularly on low-risk permitted development (PD) schemes.
How Stacked Bridging Loans Work for Property Projects
Stacked bridging loans refer to a situation where a borrower takes out a second or third “charge” against a property already secured by a first loan. In the context of a conversion project, this works by obtaining multiple loans against a property to increase the total amount of leverage.
Example:
You acquire a commercial building for conversion.
- First Charge: Your initial senior debt lender provides, for example, 65% of the purchase price and 100% of build costs.
- Second Charge: Instead of using cash, you take out a second-charge bridging loan on an unencumbered asset you already own, such as your buy-to-let (BTL) property or even your main residence. This extra injection of funds can cover the deposit required for the first loan.
This strategy effectively uses the equity in your existing property portfolio to fund your next project, eliminating the need for a large upfront cash payment.
Stretched Senior Debt: What It Is and How It Helps
Stretched senior debt is another key component. This type of loan is a form of senior debt where the lender offers a higher loan-to-cost (LTC) or loan-to-GDV (Gross Development Value) ratio than a traditional senior debt facility. It’s essentially a bigger loan for a lower deposit.
Example:
- A traditional senior debt lender might offer 65% of your purchase price and 100% of build costs.
- A stretched senior debt lender might offer 80-90% of your total project costs, significantly reducing your cash contribution.
Lenders are more likely to offer stretched senior debt on low-risk projects with clear profit margins. Permitted development schemes, which are less reliant on full planning permission, fit this profile perfectly, making them a more attractive proposition for lenders.
The Winning Combination: Stacked Bridging + Stretched Senior Debt
By combining these two financing methods, new and experienced developers can achieve 100% funding on permitted development schemes.
- Identify a PD Project: Find a commercial building that falls under Permitted Development rights (e.g., Class MA conversions). This reduces planning risk and makes the project more attractive to lenders.
- Secure Stretched Senior Debt: Approach specialist lenders who offer stretched senior facilities. These can provide a high percentage of your overall project costs.
- Deploy Stacked Bridging: Use a second-charge bridging loan on an existing property to raise the remaining funds required for the initial deposit and other soft costs.
This strategic layering of finance allows you to get your project off the ground with minimal cash investment. It is a sophisticated, proven method that many experienced developers use to scale their portfolios quickly.
Is This Right for You?
While powerful, this strategy isn’t without risk. You are leveraging multiple properties, and if the project goes wrong, you could put more of your assets at risk. However, for those with a strong project plan, a clear exit strategy (such as selling the converted units or refinancing onto a long-term buy-to-let mortgage), and the right professional advice, this can be a game-changer.
Working with an experienced finance broker like Sunrise Commercial Finance is critical. A specialist broker can navigate the complexities of these products, connecting you with the right lenders to structure a bespoke deal that fits your specific project and risk profile.
📞 Call us at 07939 091418 📧 Email: john@sunrisecommercial.co.uk 🌐 Visit: https://www.sunrisecommercial.co.uk/
Don’t let the myth of the 100% funding barrier hold you back. Understand the tools available to you and leverage them to your advantage. Your next property development project could be within reach, no huge cash injection required.
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