Well here's a surprise! Despite the recent surge in base rates, the cost of development finance has remained relatively stable. According to new analysis by Sirius Property Finance, the average interest rate on development finance loans has only increased by 0.1% since the beginning of the year.
There are a few reasons why development finance costs have not been impacted by rising base rates. First, many development finance lenders are not directly linked to the Bank of England base rate. Instead, they use a variety of factors to set their interest rates, such as the risk profile of the borrower and the current market conditions.
Second, development finance loans are typically short-term loans, with terms of between one and five years. This means that the impact of rising base rates is spread out over a shorter period of time.
Finally, the demand for development finance remains strong, which is helping to keep interest rates down. With the UK housing market still growing, there is a lot of appetite for development finance from investors and developers.
However, it is important to note that the situation could change in the future. If base rates continue to rise, it is possible that development finance costs will start to increase. However, for now, the market remains relatively stable.
Good news for buyers?
Well, yes, in a nutshell adding a little bit of profitability to the game will encourage developers to take offers as they can afford to, but above all it will introduce more developers to the market who have been put off by the soaring costs of materials and labour. At least finance is not a hurdle (yet). This may see greater good quality units in the supply of available first time buyer properties in South London.
The level of demand for development finance. If demand falls, it could lead to lower interest rates.
Funding is a factor: if there is less funding available for development finance, it could lead to higher interest rates. The risk profile of the borrower. If the borrower's risk profile increases, it could lead to higher interest rates.
Overall, the cost of development finance is likely to remain stable in the near future. However, there are a number of factors that could impact the market in the future. Watch this space...