What Rates to Expect From Development Finance

If you’re applying for development finance or comparing two quotes, it helps to know what sort of rates to expect – and how they stack up against the development finance averages!

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What Rates to Expect From Development Finance

Property development finance rates are different from those you might anticipate from a residential or commercial mortgage - but it is always helpful to know what you should expect!

The interest rates offered depend on the development finance you need and your eligibility circumstances that dictate how competitive a lender can be.

You might have been offered rates that seem non-competitive or have been rejected for a development finance application and want to review your options.

Likewise, we'd recommend seeking professional advice before proceeding with any development finance loan since a more competitive deal is almost always achievable with support from an experienced broker to negotiate costs and terms on your behalf!

In this case, the best option is to contact the Revolution Finance team on 0330 304 3040 or drop us a message at info@revolutionbrokers.co.uk so we can steer you down the best route.

What are the Average Rates on Development Finance Property?

In most cases, you'll find that the rates offered on development finance are higher than you'd expect on a residential mortgage. However, funding is released in stages, and you only pay interest on your borrowings drawn down.

Therefore, while the interest percentage itself might be more than you'd pay for a typical mortgage, you reduce your interest expenses by only paying against the proportion of the development finance facility you've used thus far.

Most development finance loans are short term, running from three months to three years, and are on an interest-only basis.

Given the short-term nature of the loan, you must have an exit strategy, setting out your plans to refinance or sell the development and pay back the financing when the project is complete.

Funds are released in tranches depending on the development project stage, with a site inspection usually required at each stage to confirm the progress made.

How Can I Get the Best Deal on Developer Finance?

The best way to ensure you get the most desirable deals, including those not offered on the open market and only accessible through specialist lenders, is to work with an experienced development finance broker.

Revolution will work with you to consider:

  • How stable your exit strategy is.
  • Your credit rating and history.
  • How experienced you are in the sector.
  • What amount you wish to borrow.
  • How much of a deposit you have available.

The higher the value you wish to apply for, the better the interest rate, with the lowest rates usually offered on £500,000 and above loans.

Many lenders have a minimum of £50,000 and will charge higher interest for smaller loans. This cap might mean that it is cheaper to opt for an alternative such as an equity release remortgage or bridging loan.

As your broker, we act as your advocate, so we will advise if we feel another form of financing offers more competitive costs or is more suited to your plans to develop your property.

Why an Exit Strategy Matters with Development Finance for First-Time Developers

Your exit strategy determines how you will repay the development finance at the end of the term.

The most common method is to sell the development when the project is completed or take out a remortgage to repay the development loan.

The more reliable your exit strategy, the better the rates you will be offered. If you can demonstrate the validity of your exit strategy, such as having an agreement in principle, you will be able to apply to a broader range of lenders.

Other options include looking at the potential sale value of the property, with a projected valuation to consider how much it will be worth once your development work has finished.

An anticipated valuation, often backed up by sale prices of comparable developments, is an excellent way to strengthen your application and qualify how much you expect to sell.

Can I Get Good Development Finance Interest Rates if I Have Bad Credit?

Any circumstances outside the standard criteria mean that you will need to consult a broker to find the most competitive lending.

Bad credit does make any form of mortgage or development finance a little harder to apply for since it increases the risk to the lender that you'll fall behind with the payments or will struggle to complete your exit strategy and repay the loan capital.

This category includes:

  • Having a low credit score or an adverse credit history.
  • Having little development experience.
  • Having a smaller deposit.

In most cases, if you can offer additional security, such as another property, the risk factor decreases, and you can negotiate better terms.

What are the Benefits of Offering a Larger Deposit on a Development Finance Property Application?

More extensive deposits mean borrowing a lower proportion of the development cost, therefore offering a lower risk proposition to a lender.

The more of a deposit you offer, the lower the Loan to Value rate. That means the lender is taking less risk that they will make a loss if the development falls through and ends up in a repossession scenario.

However, deposits aren't the only essential criteria. It might be beneficial to offer a lower deposit if that means you can invest more of your cash in covering development costs and reduce the amount of financing you need to apply for.

If you would like expert advice about the best deposit value to offer based on your circumstances and borrowing needs, give the Revolution team a ring on 0330 304 3040.

Is it Best to Use a Broker to Get the Best Development Finance Interest Rates?

Development finance rates can make a significant difference to the profit margin on your development, and so using an expert broker is the best way to ensure you find the best deals.

Independent brokers can advise on new products available, which eligibility criteria you most closely match, and which lenders offer the lowest rates.

Rates vary significantly between lenders, depending on factors such as the location, nature, value and type of property you're applying for financing to develop.

Choosing the best lender for your circumstances is the easiest way to avoid exposure to unnecessarily high-interest charges - hence the need for an independent broker to make sure you're not paying over the odds!

What Alternatives are there to Property Development Financing?

There are several different alternatives to development financing. These might be preferable if you aren't able to secure development lending, or another option is more cost-effective. Options include:

Bridging Loans

Short-term term lending, usually up to two years with the lending paid in a lump sum rather than released in stages.

Other Options

Bank loans, refinancing, and equity release remortgages are all potential alternatives. You could also consider a secured loan if you have another property, and might reduce your interest charges in doing so.

Expert Support with UK Development Finance

For independent advice about the best options for your development finance project, contact mortgage brokers on 0330 304 3040 or send us an email at info@revolutionbrokers.co.uk.

Our team scours the market to find the best deals and lending based on your requirements, and provide support with the application process from start to finish.

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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