The short answer
Development finance in the UK costs 7–14% per annum in interest (rolled up, not paid monthly), plus 1–2% arrangement fee, plus ancillary costs including valuation, legal, monitoring surveyor, and broker fees. On a typical £3M facility over 18 months, total finance costs are approximately £100,000–£200,000 depending on the rate and fees.
Using an AI platform like Assesr instead of a traditional broker saves approximately £15,000–£45,000 on the broker fee alone (0.5% vs 1–2%).
Interest rates explained
Development finance interest rates in the UK currently range from 7% to 14% per annum. Where your deal sits in that range depends on several factors:
- Borrower experience: Experienced developers with a track record of completed schemes typically secure 7–9%. First-time developers pay 10–14%.
- Loan-to-GDV ratio: Lower leverage (below 60% LTGDV) commands better rates. Higher leverage (65–70% LTGDV) attracts premium pricing.
- Scheme type: Standard residential new-build gets the best rates. Conversions, mixed-use, and specialist schemes (student, care homes) may attract higher rates.
- Location: London and the South East generally achieve slightly better rates due to perceived lower risk. Regional and secondary locations may be priced slightly higher.
- Planning status: Full planning permission gets the best rates. Outline planning or pre-planning attracts significant premiums.
Interest is almost always rolled up — added to the loan balance rather than paid monthly. This means you don't need to make payments during the build. The full balance (principal + rolled-up interest) is repaid on exit.
Full cost breakdown on a £3M facility
Here's what a typical 18-month development finance facility of £3M at 9% interest looks like in total costs:
- Rolled-up interest: £3M × 9% × 1.5 years = ~£405,000 (but only charged on drawn amounts, so actual cost is typically 60-70% of this = ~£250,000–£280,000)
- Lender arrangement fee: 1.5% × £3M = £45,000
- Broker fee (traditional): 1.5% × £3M = £45,000
- Broker fee (Assesr): 0.5% × £3M = £15,000
- RICS valuation: £5,000–£10,000
- Monitoring surveyor: 6 visits × £1,000 = £6,000
- Legal fees (lender's + borrower's): £10,000–£20,000
- Exit fee (if applicable): 0–1% = £0–£30,000
Total with traditional broker: ~£360,000–£430,000
Total with Assesr: ~£330,000–£400,000 (saving ~£30,000 on broker fees)
How to reduce your development finance costs
- Build a track record: Each completed scheme improves your negotiating position. After 3–5 projects, you'll access the best rates.
- Keep leverage conservative: Putting more equity in reduces the rate. The sweet spot is 60–65% LTGDV.
- Use AI platforms: Assesr charges 0.5% vs traditional broker fees of 1–2%, saving thousands on every deal.
- Negotiate exit fees: Not all lenders charge exit fees. If yours does, negotiate it down or find one that doesn't.
- Get competitive quotes: The single biggest rate-reducer is getting multiple lender offers. Assesr matches to 50+ lenders automatically.
Development finance cost vs profit
On a well-structured deal, total finance costs (including interest, fees, and ancillaries) typically represent 5–8% of total project costs. With a target profit margin of 15–20%, the development should generate significantly more profit than the finance costs. If finance costs are eating more than 10% of total costs, the deal may be over-leveraged or under-margined — and lenders will flag this.