First Time Developer Finance

First time developer finance interest rates & costs

What interest rate will I pay?

Interest rates start at 0.39% per month for standard residential property, however this is a stepped interest rate. This means that the rate is low for a period, i.e. 6 months, and over 1% per month for the remaining period. This can be cost effective if the facility is only needed for a very short time.

For a non-stepped rate, even where 100% of the works are to be funded, interest rates realistically start at 0.76% per month. To obtain a rate at this level, you usually need to have a good asset to liability profile, such as a large buy to let portfolio.

For applications whereby the applicant is a first time developer with little to no other assets, or high LTV’s are needed, applicants can expect to pay around 1% per month.

Are there other set up costs to consider?

Yes, all development loan lenders have set up costs that should be taken into account, this will be similar lender to lender and are:

• Lender arrangement fee – the fee that the lender charges to set up the loan and are usually between 1-2% of the loan amount. This fee is usually added to the loan. Lower arrangement fees tend to be reserved for larger loans.
• Loan exit fee – some lenders charge a fee on repayment of the loan, if charged, it’s usually an extra month’s interest or 1% of the gross loan. We always look to use a lender who won’t charge an exit fee, where possible.
• Valuation fee – some lenders require a valuation of the property. This is to ensure it is suitable security for the loan and that the lender is protected. These fees generally increase as the property value increases.
• QS fee – A quantity surveyor (QS) is the person who will measure and estimate the cost of works for the project.
• Monitoring surveyor fee – This is usually tied in with the QS, a survey may be required at the point of each drawdown.
• Legal fee – there is a fee to pay for the legal work involved in setting up the loan. You are usually expected to pay the lenders legal costs, as well as your own.
• Broker fee – some bridging loan brokers charge broker fees for arranging bridging loans. This may be a flat fee or a percentage of the loan amount. Where charged, it is usually payable on completion. We don’t charge broker fees for arranging bridging loans.

Are there any upfront costs to pay?

Yes, there are upfront costs payable before the loan completes, they are typically the valuation fee, QS fee (where the lender is funding the works), and legal fees for both you and the lender.

You can pay for, and instruct all of these upfront at the same time which is quicker, or just pay for the valuation and wait to ensure that the report is satisfactory before paying for the QS, and the same with legal fees.

Do ABC Finance charge fees for arranging development loans?

In most cases there are no broker fees, a however a fee may be charged on loans below £100,000.

How to get development funding as a first time developer

What is the application process?

– You can speak with lenders yourself, or speak with an experienced development finance broker to run through your financial needs and preferences.

– When a lender, and product is chosen, your loan application form and supporting documentation are submitted to the lender.

– The underwriter will assess your finance application and if the loan is agreed, will instruct the valuations.

– When the reports are back and is satisfactory, the offer will be issued and legals instructed.

– Both yours, and the lenders solicitor will work towards a completion date.

Should I work with a broker or go to a lender direct?

Using a broker is definitely advantageous, especially if there are no broker fees. An experienced broker will have a good knowledge of the market, and will know exactly where to turn.

The main advantage however, is that they will know how to package your application to give you the best chance of getting the loan approved.

You can of course approach lenders direct, however this can be time consuming when trying to figure out the best option, especially for a first time developer.

What documents will I have to provide?

All lenders ask for predominantly the same information, you will likely have to provide the following documents:

• Application form.
• Details of how the loan will be repaid (exit strategy).
• Proof of ID, i.e. Passport copy.
• Proof of residency, i.e. a recent utility bill.
• Latest 3 months bank statements.
• Details of the contractor.
• Month-by-month schedule of works and costs for the build.

How long does the application process take to complete?

The application process is likely to take anywhere from a few days to 4 weeks, depending on the complexity of the application and the background work involved.

Simple refurbishment applications take much less time than more complex applications whereby the lender is funding works, and complex valuations requiring a QS are involved.

If you do have an urgent deadline for funding, we may be able to adhere to this however you may pay a higher interest rate.

Frequently asked questions

Is development finance for first time developers risky?

There is always a portion of risk with any type of borrowing, this is usually when you are unable to pay back the loan. This risk is increased if this is your first project or you don’t have the experience to see the project through, this where it is key to have a strong team around you.

An experienced broker will be able to minimise this risk by assessing your application upfront to and highlighting any concerns. Due to the stringent checks also carried out by the lender, valuers, surveyors and solicitors, they tend to be safe for property developers.

Also, you should ensure that you carry out due-diligence on the contractor and look for things such as how long they have been trading and details of previous projects they have completed.

Can I repay my loan early?

In nearly all cases yes  you can repay your loan early, however there may be a minimum interest period of say 1-3 months.

Do I need to provide proof of income?

Most lenders will likely ask for proof of income, however not being able to provide evidence of income doesn’t mean that the loan won’t be approved.

What is the minimum deposit needed?

The minimum deposit needed is 20% plus fees and interest. When the cost of works is funded in arrears, you will also need funds to kick-start the project.

Can ABC Finance help me find the best deal?

Yes, as a whole of market broker we can assess your needs and situation and find you the best deal for your circumstances.

Is this type of finance regulated in the UK?

If the finance is secured against your home on a first charge basis, or the funds are to be used to develop or refurbish your home, they are FCA regulated loans.

If the funds are for property investment purposes, it is not regulated by the FCA, in the same fashion as standard buy to let mortgages.

How can I calculate my expected costs?

You can use a bridging loan calculator to work out your costs.

Alternatively, when we have sourced the best product for you, we will provide you with lending terms detailing the costs, including the gross loan, interest and fees.