Development Finance Rates & Fees: What Drives Pricing
Development finance is priced very differently from a standard mortgage — and even differently from a bridging loan. There is no single "development finance rate"; pricing is built deal-by-deal from your scheme's risk profile, your experience, and how much of the total cost you're asking the lender to fund.
This guide breaks down what you'll actually pay: the interest rate ranges you can expect, the full stack of fees, the factors that push pricing up or down, and a worked example of the all-in cost of a typical scheme.
How Development Finance Is Priced
The headline number is the monthly interest rate, but the total cost of a development facility is the sum of several components. Two features make development finance pricing distinctive:
- Interest is charged on drawn funds, not the full facility. If your facility is £1m but you've only drawn £400k, you pay interest on £400k. This is why the staged drawdown structure is so much cheaper than an equivalent bridging loan drawn in full upfront — see How Development Finance Works for the mechanics.
- Most of the cost is fees, not just rate. Arrangement, exit, monitoring, legal and valuation fees can together add up to a meaningful slice of the borrowing cost — sometimes more than the interest itself on a short scheme.
Typical Interest Rate Ranges
Rates move with the Bank of England base rate and lender appetite, so treat these as indicative ranges rather than quotes:
- Senior development finance: typically 0.65%–1.1% per month on drawn funds (roughly 8%–13% per annum equivalent), depending on LTC, experience and scheme type.
- Mezzanine / stretched senior: the top slice of higher-leverage deals is priced higher — often 1.25%–2%+ per month on the mezzanine portion, reflecting its higher risk position.
Lower-leverage schemes for experienced developers with a strong contractor and clear exit sit at the bottom of the range. First-time developers, higher LTCs, and more complex builds sit toward the top.
Interest is usually rolled up (added to the balance and repaid at exit) rather than serviced monthly, so it does not drain your cashflow during the build — but it does compound, and a portion of the facility is reserved to cover it.
The Full Fee Stack
Beyond interest, a development facility carries several fees. Typical ranges:
| Fee | Typical range | Notes |
|---|---|---|
| Arrangement fee | 1.5%–2.5% of facility | Charged by the lender; usually added to the loan |
| Exit fee | 0%–2% | Charged on some lenders, sometimes calculated on GDV rather than the loan |
| Monitoring (QS) fee | £1,500–£5,000+ | Covers the Quantity Surveyor's inspections through the build |
| Valuation / appraisal | £1,500–£5,000 | Development appraisal of land value and GDV |
| Legal costs | £3,000–£8,000 | Both your own and the lender's legals |
| Broker fee | typically 1% | Where applicable, for sourcing and managing the deal |
Not every deal carries every fee, and exit fees in particular vary widely. The structure matters: a low headline rate paired with a 2% exit fee on GDV can be more expensive overall than a slightly higher rate with no exit fee.
What Drives Your Rate Up or Down
Lenders price each deal on risk. The biggest levers:
- Leverage (LTC / LTGDV) — the more of the total cost the lender funds, the higher the rate. A 65% LTC deal prices well below a 90% LTC senior-plus-mezzanine stack. See LTV vs LTC Explained for how these ratios are calculated.
- Developer experience — a track record of completed, profitable schemes is one of the strongest pricing levers. First-time developers can still raise finance, but usually at higher rates and lower leverage.
- Scheme type and complexity — straightforward residential new-build on a clean site prices better than conversions, listed buildings, schemes with complex planning conditions, or unusual end-uses.
- Strength of the exit — a credible, evidenced exit (forward sales, an agreed refinance, comparable sales data) reassures the lender. A vague exit pushes pricing up or caps leverage.
- Contractor and build programme — an experienced main contractor with a fixed-price contract and a realistic programme reduces perceived risk.
- Loan size — very small facilities can carry proportionally higher fees; larger schemes often attract finer pricing.
Worked Example: All-In Cost of a Scheme
Consider a £1.2m total-cost residential scheme, 70% LTC, 12-month build, senior facility at 0.85% per month:
- Total facility (70% LTC): £840,000
- Average drawn balance over the build (funds drawn in stages): roughly £450,000
- Interest (12 months, ~£450k average drawn at 0.85%/month): approximately £45,900
- Arrangement fee (2% of £840k): £16,800
- Exit fee (1% of facility): £8,400
- QS monitoring: ~£3,500
- Valuation + legals: ~£8,000
Approximate all-in finance cost: ~£82,600 — around 9.8% of the facility over the year. Of that, roughly £45,900 is interest and ~£36,700 is fees. The fee stack is more than 40% of the total finance cost, which is why comparing on headline rate alone is misleading.
(Figures are illustrative — your actual cost depends on the drawdown profile, the precise fee structure, and how long funds sit drawn.)
Frequently Asked Questions
Is development finance interest charged on the whole facility?
No — interest is charged only on the funds you've actually drawn, not the total facility. Because funds are released in stages as the build progresses, your average drawn balance is well below the headline facility size, which keeps the real interest cost lower than an equivalent bridging loan drawn in full.
What is a typical development finance rate in the UK?
Senior development finance is typically around 0.65%–1.1% per month on drawn funds, with mezzanine or stretched-senior top slices priced higher. The exact rate depends on leverage, your experience, the scheme type, and the strength of your exit. Always compare on all-in cost, not just the monthly rate.
Why are the fees so high relative to the interest?
Development finance involves significant lender due diligence — appraisal, ongoing QS monitoring, and legal work — and these are charged as fees. On a short scheme, the combined arrangement, exit, monitoring and professional fees can exceed the rolled-up interest. This is why the headline rate alone is a poor guide to total cost.
Can I reduce my development finance costs?
Yes — lower leverage, a stronger evidenced exit, an experienced contractor on a fixed-price contract, and a clean planning position all reduce perceived risk and improve pricing. A broker with access to multiple development lenders can also play deals against each other to secure finer terms.
Getting the Best Pricing on Your Scheme
The cheapest deal on paper is rarely the cheapest deal in practice — exit fees, monitoring costs, and how a lender calculates fees (on the loan vs on GDV) all change the real number. The right structure depends on your leverage, your timeline, and your exit.
We work with a wide panel of development finance lenders and structure each deal to minimise the all-in cost, not just the headline rate. Get in touch with your scheme details — land cost, build cost, GDV, and timeline — and we'll come back with indicative terms and a clear breakdown of what you'd actually pay.
For the wider picture, start with the Development Finance Hub or read What Is Development Finance?.