Starting in early 2020, the development experienced delays caused by the Covid-19 pandemic and the consequential effects on national and international supply chains. In addition to these delays, building and labour costs increased significantly between 2020 and 2022, rising inflation has also led to an increase in borrowing costs with the Bank of England Base Rate rising from 0.10% p.a to 2.25% p.a in the same period.
These factors created a perfect storm leaving the borrower with a significant shortfall in the budget partway through the construction process, a situation that is becoming all too common given the current inflationary environment.
Clearwell Capital was able to deliver a second charge loan providing the funds required to complete the development and delivering certainty to both the borrower and senior lender. Whilst lending to developments with a history of cost overruns is not always straightforward, Clearwell was able to efficiently ascertain that the borrower was an experienced, professional developer and that the delays and cost increases were largely caused by circumstances outside of their control.
Since the loan completion in October, a number of houses on the development have sold with construction on the remaining units due to complete by January 2023.