66 . 7 %

By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 19th October 2020*

We regularly hear from customers in the market for property development finance, who have questions about the type of interest rates they would qualify for.

Many have been disappointed by the rates they’ve been offered in the past, or had even been turned down for finance altogether, so whatever your situation we can refer you to a specialist advisor who will be happy to work with you towards securing a great financing deal for your project.

There are plenty of good options available in this area, and the best way to get access to the most favourable rates is to speak to an expert.

In this article, we will cover:

We’ll find the perfect mortgage broker for you - for free

Save time and money with an expert mortgage broker who specialises in cases like yours

  • We've helped over 120,000 get the right advice
  • Our form only takes a minute, then let us do the hard work
  • Save up to £400 per year with the right advice (source: FCA)
  • All the brokers we work with have whole of market access

Development finance rates: what can I expect?

The first thing to be aware of when considering property development finance interest rates is that they are usually higher than the rates on mortgages. However the interest itself can usually be ‘rolled up’ into the loan, so you’ll only be charged interest on the funds you’ve actually drawn down.

Property development loans are usually offered on an interest only basis, and for a much shorter term than mortgages (typically 3 months to 3 years), and as with all short-term borrowing, this means higher rates.

Another important way in which these products differ from mortgages is that the construction funds are released in stages rather than in a lump sum, and the lender will usually carry out site inspections prior to each payment. Most lenders charge the borrower for every site visit, adding to the overall cost.   

How do I get the best property development finance rates?

Working with an experienced advisor is always the best way to ensure access to the top deals, however there are a number of factors relating to your own situation that are likely to affect the type of interest rates you could be offered when applying for development finance.

These usually include:

  • The strength of your exit strategy
  • Your personal credit history
  • Your level of industry experience
  • The size of the loan you are applying for
  • The amount of deposit/type of security you have

Generally speaking the larger the loan, the more favourable the interest rate, and the best rates on the market tend to kick in around £500k or higher. Most lenders won’t go lower than £50k and the rates at this end of the scale will be steeper, so you may want to consider another type of borrowing instead (such as a bridging loan or remortgaging to release equity) if you want to raise funds for a smaller project.

The strength of your exit strategy

You’re unlikely to get a development finance loan without a strong exit strategy in place, and this would usually be the sale of the scheme or refinancing the debt onto a mortgage.

The more likely your exit strategy is to pay out without a hitch, the more likely the lender is to offer favourable rates. For instance, it would help if you had a deal in principle in place if you plan on retaining the completed development and refinancing.

Development finance with bad credit or limited industry experience

If you have a number of factors against your name, such as a poor credit history or a relatively low level of development experience, you might want to consider putting down a larger deposit if possible or even putting up an additional security (such as a property you already own and hold sufficient equity in), as these will usually persuade the lender to be more generous in the terms they’ll be willing to offer, including interest rates.

Why put down extra deposit?

By offering to put down more deposit you could save a lot on interest in the long term: always speak to an expert for the best advice on what you can do to influence the rate, as there may be options available to you that you hadn’t considered.

Why use a broker to carry out a development finance rates comparison?

Using a specialist development finance broker is by far the best way to ensure you get the most favourable rates on development finance – they are experts in the property development field, have access to every available product in real time, and can navigate the best deals on your behalf, quickly identifying all of those you qualify for before introducing you to the lender offering the best rates on development finance for a borrower in your shoes.

The service we offer at Online Mortgage Advisor gives you access to expert brokers who are whole-of-market, already know the lenders to go to as they regularly arrange development finance deals with them already, and are accredited by our LIBF training course.

Alternatives to property development loans

If you don’t meet the necessary criteria for property development finance or if you do qualify but are being presented with hefty rates, you might want to consider another option for financing your development project. Fortunately, there are some other tried and tested options, and the advisors we work with can help to secure many of these products, too. For example:

A bridging loan

Similar to development finance, but paid in a lump sum rather than in stages. These are often used for ‘lighter’ refurbishments taking up to 24 months, and If you do want to re-apply for development finance at a later date, the two can also be used in combination. Find out more about bridging loans here.

Other possible alternatives

You may also want to compare development finance with options such as bank loans if you are funding a smaller project, or refinancing any other properties you might already own to release equity as a means of financing your project: a secured loan on another property may offer more favourable rates if you are comfortable with the risk.

Speak to an expert on development finance today!

If you have further questions and want to speak to an expert on development finance for the right advice in your unique circumstances, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. They will carry out a development loan comparison and introduce you to the lender best positioned to offer favourable rate to a customer with your need and circumstances.

What’s more, we don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 19th October 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.