Current development finance rates in the UK
Development finance interest rates in the UK typically range from 8% to 14% per annum as of 2026. The exact rate depends on several factors including scheme risk, borrower experience, leverage level, lender type, and market conditions. Interest is almost always rolled up (capitalised) rather than serviced monthly.
What drives development finance pricing?
Several factors determine the rate a lender offers:
- Leverage (LTGDV/LTC) — higher leverage means more risk for the lender, so rates increase. A 55% LTGDV deal will be priced more favourably than a 70% LTGDV deal.
- Borrower experience — first-time developers pay more than those with a proven track record of completed schemes.
- Scheme type — straightforward residential schemes attract lower rates than complex mixed-use or commercial projects.
- Location — schemes in established, liquid markets (e.g., London, South East) may attract better pricing than those in secondary locations.
- Planning status — schemes with implementable planning are priced better than those with conditions outstanding.
- Loan size — very small facilities (under £500k) or very large ones (over £20m) may have different pricing dynamics.
Fee structure
Beyond the headline interest rate, development finance comes with several fees:
- Arrangement fee: 1–2% of the total facility, payable on completion of the loan.
- Exit fee: 0–1.5% of the total facility, payable on redemption. Some lenders charge no exit fee.
- Monitoring surveyor fees: £500–£1,500 per site visit, typically 4–8 visits per project.
- Valuation fee: £2,000–£10,000+ depending on scheme complexity and size.
- Legal fees: The borrower usually pays both their own and the lender's legal costs.
How to get the best rate
The most effective ways to secure competitive development finance pricing:
- Present a complete, professional credit paper — lenders price uncertainty, not just risk.
- Demonstrate relevant experience with completed comparable projects.
- Keep leverage conservative — more equity in the deal means lower rates.
- Ensure planning is clean and implementable.
- Use a QS (quantity surveyor) report to validate build costs.
- Approach multiple lenders — the market is competitive and rates vary significantly.
Senior vs mezzanine vs stretched senior
Senior debt is the primary loan, typically at 55–65% LTGDV and 75–85% LTC. Rates: 8–12% per annum.
Mezzanine debt sits behind senior debt, filling the gap between the senior loan and the borrower's equity. Rates: 15–25% per annum, reflecting the higher risk.
Stretched senior is a single facility that goes to higher leverage (65–75% LTGDV), combining what would otherwise be senior and mezzanine into one loan. Rates: 10–14% per annum. This avoids the complexity and cost of managing two separate lenders.
Frequently asked questions
Are development finance rates negotiable?
Yes, particularly for strong borrowers with good schemes. Lenders compete for quality deals, and a well-packaged application gives you leverage to negotiate. Approaching multiple lenders simultaneously is the most effective way to drive competitive pricing.
Will rates come down in 2026?
Development finance rates are influenced by the Bank of England base rate, SONIA swap rates, and lender-specific risk appetite. If base rates continue to moderate, development finance pricing should follow, although the specialist nature of the lending means rates will always carry a significant premium over mainstream mortgage rates.