What are the extra costs involved in development finance


If you are considering applying for development finance through a broker, like ours at Magnet Capital, then it is important beforehand to take into account that there are other fees that you will need to take into consideration when you make an application. After all, the last thing you want when applying for funding is to suddenly find out unexpected costs after you have already made an agreement.

Unsure as to what sort of fees you should expect if you are applying for development finance? No problem at all. In this guide, we take you through everything you need to know about the other potential costs you could incur so that you can make an informed decision.

Broker fees

One of the main fees you will usually be expected to pay when getting development finance are broker fees. The exact amount that you will pay will typically depend on the broker, as well as the lender that you decide to choose. In terms of the average broker fee, it is in most cases approximately 1% or 2% of the total loan value taken out.

Let’s put that into an example. Say you decide to take out a development finance loan for £500,000, this will mean that you will pay a broker fee of somewhere between £5,000 and £10,000 in total. Whilst you might think this is simply an additional perhaps unnecessary cost of having to pay for a broker, think more carefully about it. This is because you may in fact actually be able to benefit from a better chance of approval earlier on as well as a lower interest rate, by deciding to go with a broker in the first place. As a result, you may end up saving more money overall by using a broker.

Arrangement fees

When getting a development finance loan, it is usually the case that the chosen lender will charge you the customer an arrangement fee. This refers to organising the loan itself and covers the cost of the work done by solicitors as well as their administration. Again, like broker fees, the exact cost of this will vary, but it is usually around 1% to 2% overall of the total loan value. Furthermore, depending on the lender in question, it could even be a requirement prior to the loan being funded, or alternatively, it is rolled up as a payment onto the full loan amount.

Surveyor costs

You will also need to take into consideration the cost of valuation fees when taking out this kind of loan. A surveyor you use, (or otherwise allocated to you by the lender or broker) will cost you anywhere from £300 up to approximately £1,200 in total for carrying out a survey of your property.

Remember all the costs that will need to be factored in when getting this kind of loan.

It is possible for you to choose your own surveyor if you so wish, but you will have to make sure that they are RICS qualified.

Stamp duty

Another fee you will need to remember to think about is stamp duty. Stamp Duty Land Tax is a lump-sum tax that is charged on all property and land that is bought across the UK. The exact amount you will pay for this will depend on certain variables, such as the purchase price of the building, and whether it will be used for residential or non-residential use.

Construction costs

Of course, when taking out a property development finance loan, you also need to factor in the costs of construction costs for carrying out your project to completion. Always make sure you have made a plan before carrying out constructing work and make a budget that you are comfortable that you will be able to stick to.