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Rates and fees associated with development finance

We will work with you to find the best all round deal, therefore maximising the return on your development.

Development finance Interest rates

Development finance interest rates start from as low as:

4% per annum or around 0.34% per month.

These are the best rates, and the hardest to qualify for. For these plans you will need:

  • To be putting in a substantial deposit
  • To have an excellent track record/experience of completing similar projects
  • To be borrowing a significant sum, in excess of £5 million
  • The completed project to have a high demand
  • The whole project to be very low risk

Typically, the more common plans start from 4.5% and 5% per annum.

Good projects being undertaken by experienced developers who are looking for 60% to 70% of the land costs and 100% of the build costs will be looking at plans ranging from:

  • 5% per annum - with 2% in and 1% out - (based on the gross loan amount)
  • 8% per annum - with 1% to 2% in and 1% out - (based on the gross loan amount)

Other options include a plan that is 9% per annum or 0.75% per month that has no arrangement or exit fees.

What rate of interest will be charged?

The rate of interest not only varies from one lender to the next, but also depends on many other factors. For example:

  • The loan to value
  • Previous experience of the developer
  • Type of project - is it a commercial, and if so what type of commercial, or a residential development.
  • Where is the development site? - fewer lenders prepared to lend on projects in Cornwall, Wales and Scotland than there are for projects in London and Manchester.

How is interest charged on a development finance facility?

Interest is charged as a monthly or annual rate.

A typical facility could be expressed as

2% in, 5.5% per annum and 1% out

Alternatively a similar facility could be expressed as

2% in, 0.45% per month and 1% out

If you have several options to consider, it is best to convert the interest rates quoted into one standard unit, monthly or annual.

A simple way to do this is to divide annual rates by 12 for a monthly equivalent or multiply monthly rates by 12 for an annual equivalent.

For example: 1% per month is equivalent to 12% pa

How are development finance fees and charges structured?

Lender Arrangement Fees or Facility Fees

Development finance arrangement fees are typically between 1% and 2% of the net, or gross, loan amount and are charged by the lender for setting up the loan

Lenders normally only charge their arrangement fee if the loan is drawn down.

In most cases this fee is added onto the loan facility, enabling it to be paid when the loan is repaid. Since it is added to the loan facility, interest will also be charged on the arrangement fee.

Exit Fees

Development finance loan agreements quite often include an exit fee.

Typically, a development finance facility may include a 1% exit fee.

This 1% fee is normally calculated using one of three options:

  1. The net loan amount of the facility
  2. The gross loan amount of the facility
  3. The Gross Development Value of the project

Therefore, in addition to finding out what the interest rate, facility fee and exit fee are for a development loan facility, you need to find out what these fees are calculated on.

For example: If you were to have a facility for £500,000 (net) that contained a 2% facility fee and 1% exit fee, over a 2 year term, to complete a development with a GDV of £1 million, the exit fee amount will vary significantly:

  • Exit Fee Calculated on Net Loan - £5,000
  • Exit Fee Calculated on Gross Loan - £6,000 (depending on drawdowns, interest rate, etc)
  • Exit Fee Calculated on Gross Development Value (GDV) - £10,000

Exit fees are charged at the end of the facility, when the loan is redeemed.

Since it is charged at redemption and not at the start of the facility, exit fees do not incur any interest charges.

Administration fees

The lender may charge administration fees, which can vary from zero to thousands of pounds. These are charged after terms have been issued and accepted by the borrower.

Broker fees

KIS Finance don’t charge Broker fees.

However other brokers do. This may be in the form of any one, or a combination of the following:

Upfront fee, also known as an engagement or commitment fee

Usually a non-returnable fee in order to engage a broker’s services.

Success fee

This is a fee that is payable upon obtaining a suitable loan offer (make sure that it is for obtaining a development loan offer that is suitable to your requirements and one that you would proceed with). Usually this fee will be added to the loan facility and deducted upon drawdown. Brokers will usually wait to be paid this way, but if you decide not to proceed for any reason, or the deal falls through for reasons outside of your control, the broker may well still expect their broker fee to be paid.

Most brokers charge a broker fee for arranging development finance, and many also charge an engagement fee.

At KIS Finance we do not charge any upfront fees for ourselves, and also no broker fees.

The only fees we may require you to pay before you receive your loan are:

  • Valuation/survey fees
  • Legal fees

You will not pay these to us, but directly to the surveyor, solicitors or lender.

Valuation fees

For developments these can be quite high.

Surveyors will need to value the development site as it is, plus also determine the likely cost of the development, how long it will take to build, and the likely value of the completed development.

Solicitor fees

In addition to paying your own fees, development lenders will require you to cover any legal costs they incur with regards to your application. Every application is different and legal fees vary depending on the facility size, location of the development, complexities of the work involved, how large the site is, how many titles, etc.   

Monitoring fees

During the course of the development, many lenders will send out surveyors to monitor the progress of the project. This is an important aspect of development as these visits need to go well as they determine further fund releases to cover the build costs.

The costs of these visits are picked up by the borrower as monitoring fees. The amount charged for monitoring fees will depend on the project and also the lender, as some lenders have noticeably more expensive monitoring costs than others.

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