When comparing property development finance rates, the interest rate is only part of the picture. The amount you draw down, when you receive it, your project length, and any associated fees all affect the total cost of borrowing.
At Hunter Finance, we assess each project individually and lend our own funds. This lets us consider your development plans and structure a proposal around the project.
This guide explains how development finance costs work and what to check when comparing offers.
What determines your development finance rate?
There is no single rate that applies to every development loan. At Hunter Finance, our assessment takes account of:
- Location: The development’s location.
- Amount: The amount you want to borrow.
- LTV: The borrowing amount relative to the property value.
- Property: The type of property being developed.
- Experience: Your previous development experience.
- Term Length: The proposed loan term.
Two projects with similar build budgets may therefore receive different funding proposals. A useful starting point is to provide clear figures for the purchase, construction costs and expected completed value, together with your proposed timescale.
How is development finance interest charged?
Hunter Finance usually charges interest monthly on the amount drawn down, rolls it into the loan, and pays it on exit through sale or refinance.
This makes the drawdown schedule important. Development funding is often released in stages as construction progresses, rather than being advanced entirely at the start. We find this is particularly helpful for our developers to manage cash flow and interest costs.
When reviewing an offer, check whether interest is calculated on the money released, the full facility, or another basis specified in the terms. Lenders may use appealing headline interest rates to attract developers, but the drawdown schedule may significantly change the picture and overall borrowing cost.
An illustrative interest calculation
Option 1: Entire £300,000 released at the start:
- Month 1: £300,000 total drawn, £6,000 interest
- Month 3: £300,000 total drawn, £6,000 interest
- Month 5: £300,000 total drawn, £6000 interest
- Total Interest: £18,000
Option 2: £100,000 released in stages at the start of months 1, 3 and 5:
- Month 1: £100,000 total drawn, £2,000 interest
- Month 3: £200,000 total drawn, £4,000 interest
- Month 5: £300,000 total drawn, £6,000 interest
- Total Interest: £12,000
As you can see, borrowing the entire amount upfront means interest is charged on a higher sum for longer. Releasing capital in stages can reduce overall borrowing costs and make cash available when it’s actually needed.
These figures demonstrate the calculation only. They are not a Hunter Finance rate or quotation. Actual interest depends on the agreed terms, drawdown dates, and how accrued interest is treated.
What other development finance costs should you consider?
Ask for a breakdown of all costs associated with the development loan, including when each becomes payable.
Depending on the proposal, the items to check include:
- Arrangement fee: Check if one applies, how it is calculated and whether it gets added to the loan. We don’t charge arrangement fees at Hunter Finance.
- Valuation: Some lenders charge for an initial valuation and any further reporting required. Hunter Finance do not charge this.
- Legal Costs: Which legal costs are you responsible for, and when is payment required?
- Checkpoints and drawdowns: Whether inspections, monitoring reports, or fund releases carry any additional charges.
- Exit Fees: Check if a fee applies when you repay the loan and how it gets calculated
- Extensions: Check upfront what happens if you need longer than the agreed term. This is a common slip-up in development project planning, where unforeseen circumstances mean the loan repayment schedule cannot be met.
This is a checklist for reviewing a proposal from a broker or lender, rather than a list of Hunter Finance charges.
Hunter Finance deals directly with developers, with no broker fees or upfront application fees. Other costs should be checked in your individual funding terms.
Why the lowest rate may not mean the lowest overall cost
A lower interest rate can be attractive, but you should consider it alongside the rest of the offer.
For example, differences in arrangement fees, drawdown timing or repayment terms may change which proposal costs less over the life of the project.
It is helpful to compare lender offers using the same criteria:
- The same purchase and construction budget.
- The same drawdown schedule.
- The same expected repayment date.
- All applicable fees.
- A scenario in which the build or sale takes longer.
It makes sense to calculate what the total borrowing could cost in different scenarios, including project delays or difficulty selling at the end of the term.
How much can you borrow?
Hunter Finance provides residential development loans from £150,000 to £3 million. Our published criteria include funding towards the purchase cost and up to 100% of build costs, subject to an overall limit of up to 60% of Gross Development Value, or GDV.
GDV is the expected value of the completed development. Funding the full build budget does not mean funding every project cost, or that you would not need some capital of your own.
For more detail, see how much we lend and our lending criteria.
What happens if your project takes longer?
A delayed build, sale or refinance can change your borrowing costs. Before agreeing a facility, understand the repayment deadline and what happens if your expected exit is delayed.
Allow time in your programme for construction, marketing and the legal process involved in selling or refinancing. If your timetable changes, discuss it with your lender early so they can consider the available options.
Hunter Finance offers exit finance and pre-completion finance to help developers at the end, or nearing the end, of their development projects.
Discuss the funding costs for your project.
The most useful development finance rate is one assessed against your actual project. Every project is unique – even if you think you don’t quite meet the criteria on paper, get in touch because we assess each project on its own merit.
Whether you are planning your first development or arranging funding for your next renovation, Hunter Finance can consider your plans and explain the proposed funding structure.
Discuss your project with Hunter Finance or call 01825 749721.
