Question 1

What profit margin do lenders expect on a development?

Accepted Answer

Most development finance lenders expect a minimum profit margin of 20% on GDV (Gross Development Value). Some will accept 15% for experienced developers with a proven track record in the Wandsworth area, particularly on lower-risk projects like light refurbishments. A margin above 25% is considered strong and will give you access to the most competitive lending terms.

Question 2

What is the difference between profit on GDV and ROI on costs?

Accepted Answer

Profit on GDV is your gross profit divided by the total sales value (GDV), expressed as a percentage. ROI on costs is your gross profit divided by your total project costs. For example, if your GDV is £1,200,000, total costs are £960,000, and profit is £240,000, then profit on GDV is 20% and ROI on costs is 25%. Lenders typically focus on profit on GDV, while developers often prefer to measure ROI on their equity invested.

Question 3

Should I include contingency in my development appraisal?

Accepted Answer

Yes, always. Most lenders and experienced developers in Wandsworth include a contingency of 5-10% on build costs. For complex projects such as basement excavations or listed building conversions common in the borough, 10-15% may be more appropriate. Failing to include adequate contingency is one of the most common mistakes made by first-time developers.

Question 4

How do I estimate my Gross Development Value (GDV)?

Accepted Answer

GDV should be based on comparable evidence of recent sales in the Wandsworth area. Look at completed sales of similar properties in terms of size, specification, and location. Use Rightmove, Zoopla, and Land Registry data. For new build flats, check developments within a 0.5-mile radius. We recommend also commissioning an RICS Red Book valuation, which is what lenders will use to verify your GDV assumptions.

Question 5

What professional fees should I budget for?

Accepted Answer

Typical professional fees for a Wandsworth development include: architect fees (8-12% of build costs for full service), structural engineer (£2,000-£5,000), planning consultant (£3,000-£10,000), party wall surveyor (£1,000-£3,000 per neighbour), building control (£1,000-£3,000), CDM coordinator, solicitor fees for purchase and sales, and estate agent fees for sales (1-2% of GDV). Total professional fees typically run 8-15% of build costs.

Question 6

How does SDLT affect my development profit?

Accepted Answer

Stamp Duty Land Tax (SDLT) can significantly impact your development profit. For non-residential or mixed-use properties purchased for development, rates are: 0% up to £150,000, 2% on the portion from £150,001 to £250,000, and 5% above £250,000. For a £500,000 purchase, SDLT would be approximately £14,500. Note: if you are buying 6+ residential units in a single transaction, you may qualify for non-residential rates, which are generally lower.

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