Market snapshot reveals surprising results
Despite the significant interest rate hikes that have significantly impacted the mortgage industry, the cost of development finance has increased by just 0.1% since the first quarter of the year, according to debt advisory specialists Sirius Property Finance.
A quarter-to-quarter market snapshot by Sirius has shown that the basic cost of development finance has increased marginally during the period between Q1 and Q2 2023, with the average interest rate rising from 12.1% in the first three months of the year to 12.2% in the following three months. An average set-up fee of 1.5% remains unchanged, as does the average exit fee at 1.1%.
However, lenders do appear to be showing some additional caution by decreasing the maximum available loan by an average of £333,000 so that it currently stands at just over £9.5 million.
Senior debt, or debt that takes priority over other unsecured or more ‘junior’ debt owed by the issuer, is the most common type of loan, accounting for almost half, or 48.5%, of all development financing in Q2. Stretched debt at 26.5% and mezzanine at 10.3% are the next most common types of loan.
Development finance usually takes the form of short- to mid-term loans, providing finances with which to build property. As such, the cost of development financing has a direct impact on the nation’s rate of development and house building.
“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,” commented Kimberley Gates (pictured), head of corporate partnerships at Sirius Property Finance.
“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.”
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