Unlocking working capital for UK developers: How deposit release bonds can transform your project
London Belgravia Group
Providing impartial and connected insurance advice to property professionals across the UK
Welcome to the latest edition of the London Belgravia Group newsletter, where we explore innovative financial solutions that are changing the landscape for UK property developers.
In this issue, we introduce Deposit Release Bonds (DRBs) - a powerful tool designed to unlock working capital and help you complete your projects with greater financial flexibility.
In the current insurance market, developers with off-plan sales strategies are facing significant challenges in securing deposit release cover alongside latent defect policies. That's where DRBs come in. These bonds allow developers to access funds held in deposit, providing a lower cost source of capital to cover ongoing construction costs.
DRBs provide a flexible solution that allows developers to access up to 10% of GDV, unlocking capital held in deposits as units are sold. DRBs are suitable for projects ranging from ￡30m to ￡200m and carry no arrangement fees and lower fixed costs.
This powerful funding alternative helps developers deleverage bank exposure by paying existing debt, offering an excellent, unsecured alternative to equity and mezzanine funding. Common uses include paying commercial agent fees and other key project completion costs.
Let’s take a look at how DRBs work in real-life scenarios. Recently, a UK developer approached us with a project valued at ￡20m. The development was already 50% complete, and 75% of the units were pre-sold. However, they needed access to the funds tied up in escrow to finish the build.
Here's how London Belgravia Group helped:
This case study clearly demonstrates how DRBs not only facilitate project completion but also lead to significant savings on borrowing costs.
For many developers, funding a project partway through can be fraught with difficulties, especially when using traditional financing methods. Junior debt or mezzanine funding often comes with high interest rates, arrangement fees, and restrictive covenants. DRBs, on the other hand, offer a fixed cost solution making them a simpler, more affordable option.
How it works:
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? Off-plan sales begin: As the project enters the construction phase, developers start off-plan sales.
? DRB underwriting: Developers undergo an underwriting process to determine the cost of the Deposit Release Bond facility.
? Security for buyers: DRBs protect 100% of the purchaser’s deposit while releasing sales proceeds towards the cost of construction.
? Quicker access to funds: With the DRB in place, developers can use funds tied in escrow for construction costs, replacing the need for high-interest loans.
? Reduced borrowing costs: By using DRBs, developers reduce borrowing costs, benefiting from lower interest rates compared to traditional financing lines.
With all the benefits of DRBs, the next logical question is: How much can you save?
London Belgravia Group has developed a DRB Calculator to give you a clear picture of your potential savings. By comparing traditional funding lines with Deposit Release Bonds, you can see exactly how much more affordable DRBs can be for your development.
?? Try the DRB calculator now to estimate your savings and see how DRBs can help unlock working capital for your project.
If you're a developer with a part-complete project or an off-plan sales strategy, DRB could be the key to completing your build on time and on budget.
?? Contact us today to learn how DRBs can provide the working capital you need to get your development over the finish line.
Many thanks for reading this issue of the LBB Property Update - our goal is to keep UK property developers informed of the latest strategies that can drive success.
Stay tuned for more insights and updates in our next issue! Don't forget to subscribe and please feel free to share with others.