What Factors Decide Development Loan Interest Rates?

If you run a property development business whether big or small it is quite likely that you will require development finance to help fund the project. Obviously, if you are borrowing monies then you will want to do so at the lowest interest rate that you can find but also taking into account any fees involved.

There are a number of factors that affect the interest rate a lender will charge you for development finance
We discuss some of the factors that affect the development loan interest rate your lender will charge you.

However, the first thing that you need to be aware of is that not all lenders charge the same interest rate so it is important that you shop around to try to obtain the best deal possible and not necessarily just accept the development finance package offered by your existing bank.

So, what are some of the things that affect the interest rate that the lender will charge you?

The lender will take into account the likes of the Bank of England’s Base Rate.

A lender will look at the likes of how long you have been trading and the strength of your business from a profitability point of view. So, if you have been established for ten years and have been involved in several property development projects that have generated a healthy net profit each year increasing the value of your business then it is likely that your proposition for finance will attract a lower rate of interest than another business that has only been trading for a year or two and been involved in a couple of development projects and has traded profitably.

Obviously, the security margin may have a bearing upon the interest rate that the lender will charge you. For instance, if you are only looking to borrow say up to 50% of Loan to Cost and 25% of the Gross Development Value then you may be able to obtain the development loan at a lower rate of interest than if you wanted to borrow funds at say 75% of Loan to Cost and 60% of the Gross Development Value. Quite simply, this is because the risk to the lender is lower when looking at the former percentages.

Both your credit rating and that of your business may have an impact upon the interest rate that you will be asked to pay. Some lenders will not consider assisting applicants for development finance if they have an adverse credit history but there are some lenders that may do so but they will normally charge a higher rate of interest.

Commercial Mortgage Link can put you in touch with a specialist who will be able to look at the development finance packages provided by a number of lenders with a view to finding you a competitive deal.

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