Development Finance at 3.25% over BoE Base Rate

Posted by Mesa Financial on 4th August 2022 -

While developers include sensitivity tabs on construction costs and and GDV's in their appraisals, it's certainly advised to include one for finance costs as rates are and will continue to rise over the coming months. Some developers are opting for fixed facilities so they have more clarity over total finance costs, especially when loan to values are high and the risk of becoming over leveraged is increased if house prices start to cool. However, we are working with a number of cash-rich developers that are happy to inject more equity in order to keep finance costs at a reasonable level.

We recently structured a deal in South West London with a total GDV of c£14m.

• Loan: £7.3m
• Rate: 3.25% over BoE base rate
• Term: 24 months
• Arrangement fee: 2% added to the loan
• Exit fee: 1.5% of loan amount

Every developer we work with operates in a slightly different fashion so it's paramount we understand requirements, concerns and future pipelines in order structure deals correctly from the outset.

While cost overruns have eaten into future profits and finance costs are on the rise, less equity is being recycled into future schemes which has created a slight equity gap for some developers. Fortunately there are still many equity investors that are active in the market and looking to JV with the right individuals.

Pre pandemic, development finance was quite readily available but we could start to see funders pull the reigns in ever so slightly over the next twelve months.