Menu

Development Finance

development finance rates

Development finance rates

Are development finance rates expensive?

That’s quite a difficult question to answer because like all things finance related, interest rates on a particular product are relative to other products within that sector.

For example, if you compare a development finance loan to a residential loan (one where you’ll be buying a house to live in for example), then yes development finance rates would seem expensive.

However everything needs to be taken in context and if you look at what development finance can actually do for a borrower and how risky it can potentially be for a lender, you will understand why it is priced more expensively the more traditional lending products, especially if you are considering 100% development finance.

There are certain lenders out there who will tell you that they can offer development finance rates conscious 0.4% per month, the reality is that you are unlikely to be able to obtain a rate at that level simply because that is what is known as a headline rate, lenders use this all the time to try and attract new customers and borrowers.

What you may find after you’ve applied, is that the lender will come back to you and tell you that for whatever reason, you are unable to secure the rate of 0.4% per month (noted above) and in fact your rate will be closer or even greater than 1% per month.

Look at the other fees that lenders charge

The other important thing to note is that those lenders who offer you what seems to be a very low headline interest rate, will often be the lenders that have the highest associated fees and this is typical of how development finance rates are calculated.

For example, they will have site visit fees, additional arrangement or administration fees, ongoing development monitoring fees (these will be in addition to the QS fees) and also fees for administering the staged drawdowns on the development.

It is a common trick employed by lots of lenders in the bridging loan, commercial mortgage and development finance sector and by the time you get to the end of your project and all of the fees and interest has been rolled up, it can be very expensive.

Do your research

When applying for development finance, make sure that you ask the lender in question for a breakdown of all the fees and charges, not only the charges for things like late payments or default fees after the loan has completed but before the loan has completed so you are fully aware in advance of everything that you should be paying.

Once you have all this information then you will be able to compare like with like when dealing with a lender. Here at anytypeofloan.co.uk we do all of this for you to ensure we find the most competitive deal for you and the one that meets your requirements.

However one final note of warning, a lot of the new lenders who have entered the market are offering what appears to be some of the cheapest development finance rates in the market. This is not uncommon, as lots of new lenders that enter a particular market will often come out with market leading interest rates, however in the development finance sector it’s important to understand if the lender has sufficient funding or capital to finish the build or development.

There will be nothing worse than a borrower starting a project that is being funded by a new lender only to find a that the lender comes back to them in six or seven months time and tells him that they have run out of funds to be able to provide them with the rest of the money to complete the build. 

You will be left in limbo and will have to try and refinance your loan with another lender and the problem with this is, is that short and lenders or rather development finance lenders, don’t like having to step in and finance developments that were started by another lender, regardless of the circumstances surrounding it.

Key points to consider when searching for the best development finance rates

  • Make sure you get a breakdown of all the associated costs and fees with the loan
  • Ask for this information in writing
  • Ask the lender for confirmation of how long these rates and fees will apply for
  • Also ask the lender to itemise and break down the cost of third-party fees from the likes of Solicitors, valuers and the QS
  • Most importantly of all, make sure you consider the total cost of borrowing money on your development finance loan and make sure you do not focus solely on the headline interest rate, because that is not a true indication of how much the loan is costing you
Can I get 100% development finance

Can I get 100% development finance?

Yes, you can get 100% development finance but like all things, it depends on a few factors. 

All lenders will look at the experience of the borrower. If the borrower is relatively inexperienced and is requesting all of the development finance and further capital to also buy or purchase the property, then they are unlikely to want to support the borrower. Not impossible but very unlikely.

However, if the borrower has retained the services of a good Quantity Surveyor (QS), has a detailed development appraisal and cash flow forecast, then certain lenders will still look at supporting the borrower with 100% development finance.

Is 100% development finance expensive?

Not necessarily so, in fact, a number of development finance products offered by lenders are as cheap or as inexpensive as those lenders offering simple bridging loans. Of course, recent volatility in the money markets regarding interest rates have made development finance a little bit more expensive than it once was but it still remains competitive especially when compared with other types of loans or finance.

The other thing to note about development finance is the other fees that you will have to pay such as the lenders arrangement fee, the exit fee, site visit fees, legal and valuation fees.

Not to mention there will also be fees to pay to the QS such as their initial report and for every subsequent visit they make to the development.

100% property development finance

Employ the right professional team

Making sure you have the right professional team on your project is essential if you want to make it work and also deliver a reasonable profit at the end of the development.

New borrowers often make the mistake of employing friends or family to help them out with things such as the construction or the financial forecasting and that is a big mistake. The quality of your professional team such as your architect, your solicitor, your accountant and your main contractor, can make or break your project.

The other thing to consider is which lender you are going to be working with to fund your development. Lots of lenders say they have funding but when it comes down to drawing down the money for each stage of your development, many lenders are found wanting and in turn, that means that you will be unable to finish your development and are therefore at risk of being left with an unfinished development and that will make it very difficult to sell or to even refinance.

Key Features of 100% development finance

  • All of the funds required to build your property can be provided
  • These funds will include professional fees such as planning applications and architects fees
  • Money is drawdown in stages
  • Loan terms can be up to 24 months maximum
  • Lenders will insist on retaining a QS to monitor the build – paid for by the borrower
  • All legals fees (both lenders and borrowers) are paid for by the borrower

Is development finance available all over the UK?

Yes it is but there are less lenders available to lend in Scotland and that is purely and simply down to the different legal process which is required in Scotland compared to that in England and Wales. Currently there are no development finance lenders that we are aware of that will lend in Northern Ireland.

Furthermore, the majority of lenders will be unlikely to fund a development in a rural area as this will make saleability more difficult than it will in an urban area where there is more demand for housing.

Frequently Asked Questions

What are the minimum and maximum loan amount available with development finance?

This is where it differs from bridging loans because development loans tend to start with a minimum loan of £100,000 and will go up to a maximum loan of £50 million. Again, this is entirely dependent on the quality and experience of the borrower and of the location.

What is a typical interest rate on a development finance loan?

Whilst many brokers will tell you that you can get rates as low as 0.45% per month, the reality is that most development finance rates tend to be in the region of 1% a month

Do all lenders have exit fees?

No they don’t. We will search the market and return a list of development finance lenders who will lend without the need for an exit fee or at the very least, a reduced exit fee.

How do I apply for a 100% development finance loan?

Simply input your contact details in the form on the right hand side of the site on one of our team will get back to you to start the process. But don’t worry, we will do everything for you and take you through the process step-by-step.

© 2022 Any Type of Loan. All Rights Reserved
Linenhall House, 85 Watergate Street, Chester CH1 2LF
Any Type of Loan is not regulated by the Financial Conduct Authority or under the Financial Services & Markets Act (FSMA). All loans provided by us are non-regulated mortgage contracts, defined under Article 61(3) of the FCA Regulated Activities Order or non-regulated contracts under the Consumer Credit Act. Property Development Finance
We do not charge upfront fees. Our fee structure is very simple and transparent. We get paid by the lender, not the borrower. There are no other fees to pay
Privacy Policy | Terms & Conditions