Obviously we have been going through a little bit of a crisis period with interest rates since October 2022 and the mini budget announcement, but we are pleased to start seeing interest rates stabalise and slowly they will start to reduce (at the point of wting, November 2023). Interest rates on property development finance can vary widely based on several things, but on the whole you will find that most lenders rates will be within 0.50% of each other.

In the last 20 years of providing commercial and development mortgage advice to clients, unlike residential mortgage lending, the non-regulated, development finance and bridging finance markets are not as volatile, so fluctuations are less than the regulated mortgage market. Below are a few different areas of development finance and how the rates measure up:

Bank Loans or Traditional Lenders: These loans typically offer lower interest rates, ranging roughly between 4% to 12%, depending on the lender’s terms, the project’s risk profile, and the borrower’s financial history. These types of loans are sometimes leveraged by businesses because they need a low level of funding for their property development and therefore don’t require true development finance.

Development Finance or Specialist Lender finance: These lenders cater specifically to property development projects and often offer higher rates to compensate for the increased risk. Interest is usually paid on redemption andis rolled up and compounded. The typical market would offer rates from 0.84% to 1.15%. You are charged monthly instead of having the rate set for a particular period like you would do with regulated contracts. Therefore the longer you have your finance agreement for, the more it will cost you. For example if your rate is 0.84% and you have it for 12 months then your accumulated rate woud be 0.84% x 12 (Months = 10.08%). Please note this does not represet and APR (Annual percentage rate) and does not reflect any potential fees the lenders may charge.

Mezzanine Financing: This type of financing usually involves higher interest rates compared to senior debt or traditional loans. They are a bit like a ‘second charge homeloan’ that you may often see in the residential or BTL mortgage space. Rates can vary significantly but might range from 1.15% to 3% per month.

Bridging Loans: We do alot of short term bridging finance for our property ‘chain breaking’, refurbishment cases and property flip projects. Depending on the loan to value rates will range from 0.64% to 1.15%. Remember, the bridging finance lenders will base their loan to value on the gross loan and not the net loan i.e. they will look at the loan amount plus interest and fees to calculate the loan to value.

For the most accurate and up-to-date information on interest rates for property development finance, it’s advisable to consult with financial experts. We can review the entire specilaist finance market and often negotiate with lenders on fees and rates. The more projects you do the more appetitie lenders have to be flexibile on price, especially when you deliver on your project timescales etc.

For more information and advice on the different types of development finance, get in touch with our devevelopment finance advisers on 0117 251 0563.