Development Finance

Development Finance Rates

Each Development Finance Loan is Unique

When it comes to development finance rates, each and every development loan is priced according to a number of factors, making most development finance loans individually priced, but within a set of parameters which determine to some degree the ultimate interest rate.

Rates for UK-based projects normally start at around 3.5% over Bank of England base rate or Libor. However, pricing can steer off-course when factors outside of general lending policy are part of the application, or if funding is provided from a non-bank funder, this may add to the overall cost of borrowing.

Equally, when circumstances favour the developer, such as pre-sales or a low loan to value loan, then lenders may be able to offer rates lower than advertised or promoted rates.

 

Belgravia Finance Brokers

At Belgravia Finance, we make it our priority to know lenders’ criteria inside out, so that when placing a new enquiry, we are well aware of what the rate should be for a given deal, which often is far more complex than the average loan.

Below is a handy reference guide for all property developers wondering what interest rate might be possible for a given development based on loan size, loan to cost, and loan to GDV. It does not take into account any additional criteria, development type, or location, but it is suitable as a guide.

 

Below is a Development Finance Rates Guide for UK Property Development

Loan SizeLoan to Cost
(LTC)
Loan to GDV
(LTGDV)
Rate (margin)

Per annum

Lenders FeeExit Fee
£10m+Up to 60%50-55%3.50%+1.25%+none
£250,000-£10mUp to 60%50-55%4.00%+1.25%+none
£3m-£40mUp to 60%60%5%+1.25%+none
£3m-£30mUp to 70%60%4.5%+1.25%+0%-1%
£5m-£100m+Up to 80%60%5.65%+1%+0.5% / per 6 months
£5m-£100m+Up to 90%60%6.5%+1%+0.5%+
£5m-£100m+Up to 90%80%7.5%+1%+0.5% / per 6 months

 

In order to know what development finance rates your development will qualify for, please contact a specialist finance broker at Belgravia Property Finance to discuss your development. Initially, Belgravia Finance can provide an indication of costs after an initial fact find by phone, then detailed development appraisal and further information will be required.

For development projects that have complexities, you can expect rates to be higher, but not always – this very much depends on the lender and loan amount.

 

Here is a list of key underwriting concerns that will help a lender to price a loan

Location
Location, Location, Location – it always matters.

Loan Amount
Generally the higher the loan, the lower the rate.

Borrower Experience (Director/Beneficial Owner)
The more experience, the lower the rate.

Loan to Cost
The lower the loan to cost, the lower the rate.

Loan to GDV
The lower the loan to GDV, the lower the rate.

Proposed Exit
Pre-sales or pre-lets will be key to obtaining a lower rate. If the development will be retained then evidence of long-term refinance will be required.

Value of Units per sq. ft
Lenders may have a comfort level, say they lend on properties with a developed value per sq. ft not exceeding £1000, you should be well within their maximum range.

Area Demographics
Clearly, any development must be suitable for the area i.e. student accommodation near to a university that needs new student housing, residential accommodation in an up and coming area popular with young professionals.

 

The Building Contractor

Also, any contractor appointed should have a proven track record and accounts to prove turnover, which is expected to be significantly higher than the turnover from the project being funded. Each lender has their own criteria relating to contractors.

The above are just some of the factors to consider when choosing which lenders should fund your project. Remember, it should never be only for the lowest rate on the market. Finally, it may be that the lowest rate available is also from the ideal lender to work with.

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