A GUIDE TO DEVELOPMENT FINANCE RATES

Partly due to the added costs involved with development finance and their specialist loan structure, development finance interest rates are often higher than other forms of property finance. Development finance rates are often calculated on a monthly or yearly basis and can sit around or above 1% interest monthly.

Development Finance is often on shorter terms. Our financing terms typically range from 4 months to 2 years. To account for unforeseen delays, we always provide a minimum extension of 3 months beyond the projected cash flow period.

The rates of development finance loans are calculated and vary due to a number of factors: 

Gross Development Value (GDV): 

The projected value of your project upon completion plays a role in determining the interest rate. Higher GDV projects may qualify for lower rates.

Loan Term: 

The duration of the loan can impact the interest rate. Typically, longer-term loans might have higher rates.

Developer Experience: 

Your track record as a developer is a key consideration. Experienced developers may secure more favourable rates compared to first-time developers.

Loan Amount: 

The size of the loan can affect the interest rate. Larger loans may qualify for more competitive rates. Loan to Cost (LTC), the size of the loan in comparison to the complete cost of the project, will also affect the rate of your loan. 

Development Location: 

The geographical location of your project matters. Some lenders may offer different rates based on the region, and not all lenders finance projects in every area.

Project Complexity: 

The intricacy of your development project could influence the interest rate. More complex projects might be associated with higher rates.

Type of Financing: 

Different types of financing, such as bridging loans, mezzanine finance, or joint venture finance, may come with distinct interest rates.

Deposit Size: 

The size of your deposit, particularly in commercial projects, can impact the interest rate. Smaller deposits may result in higher rates.

Credit History: 

Your personal and business credit history is a significant factor. A strong credit history may lead to more favourable interest rates.

To get the best rates, a good track record / credit history, a large deposit and a clear plan for what you intend to develop, will put you in good stead. Consider speaking to a broker, rather than going directly to a lender, as they may be able to garner you better rates on the same investment.

Currently, at BiG our best development finance rates are from 1.10% a month. This represents our best rate and can be subject to the factors mentioned above, such as location, Loan to Cost or location.

With development finance there are a number of additional charges that a borrower should be aware of before going ahead with a loan.

Arrangement Fee: 

Charged by the lender for setting up the development finance or administratively arranging the loan. Typically 1-2% of the loan amount.

Valuation Fee: 

Covers the cost of a professional surveyor or valuer assessing the property’s value and condition. Cost can vary, but may range from £1,000 to £2,000.

Legal Fees: 

Involves hiring a solicitor to handle legal aspects of the loan and property transaction. Cost varies and includes both your solicitor’s fees and the lender’s legal fees.

Surveyor’s Fee: 

Needed to estimate the Gross Development Value (GDV) of your project. Could cost around £1,000 to £2,000.

Exit Fee: 

Charged by some lenders upon repaying the loan, usually 1-2% of the loan amount or GDV. Cost varies based on whether it’s against the loan amount or GDV.

Professional Fees: 

Additional professionals may be required, such as architects, quantity surveyors, and project managers. Cost will vary depending on the specific  professionals needed and the complexity of the project.

At BiG Property Finance we charge the following fees and costs:

• Arrangement Fee from 1% of the facility.
• A Valuation Report for the land value; gross development value and build costs will be instructed by BiG and the cost will be paid for by the borrower.
• The borrower will be responsible for our legal costs in setting up the loan, circa £1,200 to £2,500 depending on the property and loan structure.
• A small fee of circa £250-£300 per release of charge will be payable to our solicitor on exit.
• A Monitoring Surveyor will be appointed to issue certificates for the value of works against which BiG will release payments. Circa £400 per certificate.

If you would like to find out more about property development finance, or are looking for a lender that can support you, contact BiG Property Finance today!