- 8th May 2020
- Posted by: DMM
- Category: Development Finance
Finding the best development funding rates is always important for every property developer but is especially so as we face the challenges of the impact from Coronavirus. Property development funding structures include senior debt, stretch, mezzanine, JV and bridging with each type having specialist lenders. Consequently, there are hundreds of property development lending products to choose from with each lender having their own loan criteria and individual appetite for deals. Choosing the best development funding rates can save money and, importantly, time. If a developer is in competition for a site, then spending weeks searching for a lender can also be costly.
What are the best development funding rates?
Naturally, property development interest rates can vary enormously and will depend upon the loan type, the values involved, site location, the developer’s experience and so on. Lower value loans, say those under £500,000, will typically attract higher rates as otherwise the return for a lender may be too small for a deal to be viable. Such rates may range from around 7%p.a. to as much as 20%p.a. where the loan to value is high.
As loan sizes get larger and an experienced property developer has more equity to contribute, then loan rates may fall as low as 4.5%. High loan to value or second charge lending, such as a mezzanine loan, is high risk for the lender and so rates may vary from 15-24%p.a.
For an experienced property developer with a loan to value below 70% then rates at 6.5-7%p.a. are more likely. Some lenders rates will may also be affected by the Libor rate.
As loan sizes get larger and an experienced property developer has more equity to contribute, then loan rates may fall as low as 4.5%
With each property development loan there are a range of fees that will apply. These fees will include:
Arrangement fees – These will typically be between 1-2% of the facility amount but may also be shared with an introducing broker.
Broker fees – A broker that acts for the borrower in finding the best development funding rates will, of course, take a fee upon successfully placing a loan. This fee will usually range from 1-2% of the loan amount. Developer Money Market offer an online loan search platform that enable developers to find the best development funding rates direct and their fee is only 0.5% if a loan is placed.
Valuation – Each lender will need to have a formal valuation of the land being lent against. The cost of a valuation report is paid by the borrower and will usually depend upon the size of the project.
Professional fees – Lenders will appoint a Monitoring Quantity Surveyor (QS) to oversee a construction project on their behalf and approve drawdown requests. These fees will vary but are likely to start at £450+vat per visit.
Exit fees – Upon the final repayment of the property development loan, an exit fee will usually be liable to the lender of around 1-2%. This is usually calculated against the facility amount but borrowers should note whether this is being calculated against the GDV.
Property developers can find the best development funding rates using an online loan search platform from Developer Money Market. The platform is free to use and only takes a few minutes to enter the project data. Borrowers will be presented with the matching loan products and can start an application process with just one click. Developer Money Market will open doors to lenders and provide support in return for a small fee. To compare property development finance simply click here!