Development finance rates stay stable quarter-on-quarter

Sirius Property Finance looked at its own data as well as information from property investor and developer platform Property Data. It found that the average interest rate for a development finance loan sat at 12.2 per cent in Q2, a marginal increase from 12.1 per cent during the previous three months. 

The average set up fee stayed the same at 1.5 per cent, as did the average exit fee at 1.1 per cent. 

The firm said it was “surprising to see such minimal change” considering the wider economic backdrop, but added that lenders much be taking caution by reducing maximum loan sizes instead. 

In Q2, the average loan size for development finance was £9.5m, some £333,000 lower than the quarter before. 

Senior debts were the most popular loan type in Q2, accounting for 48.5 per cent of the market. This was similar to the quarter before, when this type of loan made up 49.3 per cent of lending. 

Stretched debts were the second most favoured by borrowers, accounting for 26.5 per cent of the market, and this was followed by mezzanine loans which made up 10.3 per cent. 

These were at similar levels to the quarterly period before. 

Kimberley Gates, head of corporate partnerships at Sirius Property Finance, said: “The cost of borrowing has exploded in recent months, so it’s good to see that despite two further increases to the base rate, the cost of financing a development has seen only the most marginal increase since the first quarter of this year. 

“While the current domestic news cycle is taken up by the cost of living crisis, it’s important to remember that we remain in a time of housing crisis too. Therefore, it’s vital that ongoing housing development keeps moving forward during this difficult time in order to sustain the ongoing demand for homeownership.”