What Costs to Expect on a Development Finance Loan?
This is dependent on the experience of the property developer. Rates can be as low as 4% pa and they can go as high as 20% pa for say an ex-bankrupt, so the range can be anywhere in between. Also, most lenders charge an arrangement fee of between 1-2% of the loan amount. Some Lenders also charge an exit fee, although not all. This is usually a percentage of the GDV (gross development value), and around 1% to 1.25% depending on the Development Loan period, i.e. 1% of gross development value for a 12-month loan 1.25 % of GDV for an 18-month loan.
What Are the Main Development Finance Costs?
Fees, charges and general borrowing costs vary significantly from one lender to the next. The following will apply in most instances as the primary costs of development finance:
Facility fee – More commonly referred to as an arrangement fee, the facility fee is calculated as a percentage of the total cost of the loan (gross or net).
Interest rate – Interest on a development finance loan can be charged on an annual or monthly basis. Annual interest rates of 7% are not uncommon, as are monthly interest rates of 1%. Longer-term facilities attach lower rates of interest, though cost more than those that are repaid quicker.
Exit fee – Sometimes called a completion fee, the exit fee is usually calculated as a percentage of the total cost of the loan (gross or net). Some lenders charge a percentage of the total value of the completed project – not the sum borrowed.
Mortgage adviser fee – Most brokers charge typically 1% to 1.75% of the total value of the loan. If a fee is charged, you will be informed of this in our initial quotation.
These are just some of the primary costs to take into account when considering development finance. Working with an independent broker will help ensure you gain access to the best possible deal to suit both your requirements and your budget.
Other Development Finance Costs to Take Into Account
Additional development finance costs to take into account (which may or may not be applicable) include the following:
Valuation fees – It will usually be necessary for an initial valuation to be carried out by a neutral third party, in order to assess the open market value of the security. This will also typically include a projected valuation of the completed project.
Application fees – UK Property Finance does not charge application fees. Some lenders and brokers impose fees simply for submitting an initial application, or seeking advice on development finance.
Legal fees – If it becomes necessary to hire a solicitor or seek qualified legal advice, the applicant will be responsible for meeting all such costs accordingly.
Administration fees – This is a somewhat vague term, which can apply to almost any additional cost imposed by the lender. Some brokers also charge administration fees – UK Property Finance does not.
Monitoring fees – Development finance lenders will naturally need to monitor the progress of the project, in order to ensure it is reaching its predetermined goals. This is to make sure their investment is sound, and the funds allocated are being used as agreed. All monitoring fees are picked up by the borrower.
Draw down fees – Each time a new instalment of funds is transferred to the borrower, an additional fee known as a draw down fee may apply. This could be a set fee, or charged in accordance with the size of the instalment.
Telegraphic Transfer fee (TT Fee) – This is a cost imposed by the banks handling the money transfers, which in the case of development finance can be comparatively large. Nevertheless, TT fees are generally quite small and charged at a fixed rate.