We are in the middle of doing a development where ( despite the fact that anyone and his dog can get 100% funding as far as I can see) we are supposed to put up 30%. Originally, DESPITE the fact that the completed building is worth 3 times what we will have spent on it, we were supposed to put additional funding into the company. Never mind the Bank already held huge amounts of additional security, and never mind that we had sufficient capacity in our overdraft facility.
So, as a compromise, we agreed to do a certain amount of the work before the bank was asked to give us any of the money. That's the stage we are currently at, and, I may say, we have been able to cut about 11% off the total cost, making the profit to us even higher, and the borrowing requirement lower. That means instead of loan to value being 35% it will probably end up about 30%.
So today we asked for the first £50,000 drawdown, against approx. £200,000 we have spent. And the Bank said " Where's your contribution?" So I said "Come and see it - we've spent £200k". " How do we know it's worth £200,000? And what if the building is now worth less than when you bought it BECAUSE OF the works you have done?"
There's not a lot you can say when you are choking with astonishment.
So I said " Forget it, I'll take our business elsewhere".
And the Bank said "There's no need for that - the money is available now."
So what was that all about? Well, a little bird told me all the banks are running out of money, as they have lent so much, especially on mortgages, and new regulations and required ratios will shortly come into force. As a result they are all busily packaging these mortgages to sell to third parties ( £ 5 billion at a time I understand) a la Fannie Mae in the States. Which also means the easy money is slowly being squeezed and the housing market is heading for a crash.
Or something.
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