Commercial development finance rates and costs
What it costs to fund a commercial development scheme in 2026, and what drives your rate.
Senior commercial development finance typically costs around 9 to 12 percent a year, plus a 1 to 2 percent arrangement fee. Stretch senior and mezzanine price higher. Your actual rate is driven by leverage, the scheme's margin, the sector and your track record, not a single headline number.
At a glance
- Senior rate~9 to 12% pa
- Arrangement fee1 to 2%
- MezzanineHigher, often + profit share
- Biggest leverLeverage, margin and sector
What is commercial development finance?
Commercial development finance is short-term funding for the purchase and construction of a commercial scheme: PBSA, offices, warehouses, logistics, care homes, hotels and mixed-use commercial.
It is repaid when the finished asset is sold or refinanced, so it is priced for the short term and for construction risk.
Commercial development finance rates in 2026
Rates sit within the development-finance range and vary by structure:
| Structure | Indicative rate |
|---|---|
| Senior development finance | 9 to 12% pa |
| Stretch senior | Blended, above senior |
| Mezzanine | Higher + possible profit share |
| JV equity | Profit share, not a rate |
| Commercial bridging | 0.65 to 1.0% per month |
A pre-let logistics unit or operator-backed care home prices more keenly than a speculative office, because the exit is more certain.
How development finance pricing is calculated
A lender prices the facility against the two limits it lends on, then layers risk on top.
| Test | Typical cap | Measured against |
|---|---|---|
| Loan to cost (LTC) | 65 to 70% | Total project cost |
| Loan to GDV (LTGDV) | 60 to 65% | Finished commercial value |
The maximum facility is the lower of the two. A scheme pushing the upper end of either cap carries a higher rate.
How much can you borrow?
Leverage, and therefore the equity you fund, depends on the structure:
| Structure | Leverage (of cost) |
|---|---|
| Senior | 65 to 70% |
| Stretch senior | 75 to 80% |
| Senior + mezzanine | 85 to 90% |
| With JV equity | Up to 100% |
The fees beyond the interest rate
Interest is only part of the cost of funds. Budget for:
| Fee | Typical level |
|---|---|
| Arrangement fee | 1 to 2% of the loan |
| Exit fee | On some facilities, varies |
| Valuation | Scheme dependent |
| Monitoring surveyor | Certifies each drawdown |
| Legal fees | Both sides, payable by borrower |
How interest is charged
Most commercial development facilities roll interest up and repay it on exit, which protects cashflow during the build.
- Rolled up: added to the loan, repaid on exit (most common)
- Retained: deducted from the loan up front
- Serviced: paid monthly from cashflow
Because rolled-up interest forms part of the facility, it sits inside the loan-to-cost calculation from day one.
What drives your rate
- Leverage: a higher LTC or LTGDV costs more
- The scheme's margin over cost
- Sector and exit certainty (pre-let, operator covenant, institutional buyer)
- Planning status and the build contract
- Your track record as a commercial developer
Are commercial schemes more expensive to fund than residential?
Not inherently. Pricing turns on certainty of exit rather than on the use class.
A pre-let or operator-backed commercial scheme can price below a speculative residential one, because the income, and therefore the exit, is contracted.
Eligibility: can you get commercial development finance?
Lenders fund viable schemes delivered by credible teams. They assess your track record, the professional team, planning, the build contract and the realism of the exit.
A clean appraisal with a sensible margin over cost is the foundation of any competitive rate.
How to get the best rate
- Present a clean, realistic appraisal with contingency
- Maximise sensible senior leverage before adding pricier layers
- Secure a pre-let or operator agreement where the sector allows
- Show a clear, deliverable exit
- Run the scheme across the whole lender panel, not one desk
That last point is our job: we model the stack and place it with the lenders that back your sector at the keenest blended cost.
Worked example: funding a £3m commercial scheme
Take a commercial scheme with a £3m gross development value and £2.2m of total cost (land, build, fees and finance).
| Figure | Amount |
|---|---|
| Total cost | £2,200,000 |
| GDV | £3,000,000 |
| Senior at 70% of cost | £1,540,000 |
| Capped at 65% of GDV | £1,950,000 |
| Maximum senior loan | £1,540,000 |
| Day-one equity | £660,000 |
The loan-to-cost cap bites first, so the facility is £1.54m and the developer funds £660,000 of equity. At around 10 percent a year on the drawn balance, rolled up over an 18-month build, interest is the next-largest cost after construction itself.
Do rates vary by commercial sector?
Yes. Pricing shifts by asset class because exit certainty differs.
A pre-let logistics or industrial scheme, or an operator-backed care home, prices toward the lower end of the range. A speculative office or leisure scheme with letting risk prices higher, or draws lower leverage.
What can commercial development finance fund?
The same facility funds a wide range of commercial projects, and the project type feeds straight into the rate.
- Ground-up construction of offices, industrial, logistics and student accommodation
- Conversion of an existing building to a new commercial use
- Heavy refurbishment and repositioning of tired commercial stock
- The commercial element of a mixed-use regeneration scheme
- Care homes, hotels and other operator-led assets
Each asset class is underwritten on its own tests, so the headline rate always sits within a range until the scheme is assessed.
How the cost of capital rises up the stack
Every layer of funding costs more than the one below it, because it sits closer to the risk and is repaid later.
Senior debt is the cheapest and is repaid first. Stretch senior prices above it for the extra leverage. Mezzanine, behind the senior charge, is dearer again and often takes a profit share.
JV equity is the most expensive of all, because it is paid out of profit rather than as a rate. The lowest blended cost almost always comes from maximising sensible senior debt before adding the pricier layers.
The true, all-in cost of funds
The headline rate understates what a facility actually costs. The true cost combines interest, the arrangement and any exit fee, and the third-party valuation, monitoring surveyor and legal costs.
On a typical 18-month commercial scheme, fees and rolled-up interest together add meaningfully to what you repay over the drawn balance.
We set out the all-in cost of every offer, not just the rate, so a cheaper headline with heavier fees does not win on the wrong number.
How lenders assess your scheme's risk
Your rate is a direct read of how a lender scores the scheme. The main factors are:
- Margin: the profit on cost the lender sees before finance
- Leverage: how hard you push loan to cost and loan to GDV
- Sector: how certain the exit is for that asset class
- Planning: full consent, prior approval, or none yet
- Team: your record and the strength of the main contractor
- Exit: how clear and deliverable the repayment route is
Improve any of these and the rate improves with it.
Are commercial development finance rates fixed or variable?
Most development facilities are priced as a margin over a reference rate, so the cost can move with the wider rate environment across the term.
Some lenders fix the rate for the term, removing that uncertainty at a small premium. On a short build the difference is usually modest; on a longer or phased commercial scheme it matters more.
Why a broker gets you a better rate
Development lenders price the same scheme differently, depending on their appetite for the sector, their cost of funds and how full their pipeline is.
Going to one lender means taking their number. Running the scheme across the whole panel means the keenest lender for your asset class competes for it.
That, plus packaging the appraisal so it underwrites cleanly, is where an arranger earns its fee several times over.
Development finance rates by loan size
Loan size affects pricing. Smaller schemes carry a slightly higher rate because a lender's fixed costs are spread over a smaller loan; larger, institutional-scale schemes price more keenly and attract a wider field of lenders.
| Loan size | Typical senior rate |
|---|---|
| £1m to £3m | Toward 11 to 12% pa |
| £3m to £10m | Around 10 to 11% pa |
| £10m and above | From around 9 to 10% pa |
These are starting points. A pre-let or operator-backed scheme can price below the band for its size, while a speculative one prices above it.
How development finance compares to other property finance
Development finance is priced for short-term construction risk, so it sits between cheaper long-term debt and faster, dearer bridging.
| Product | Typical pricing |
|---|---|
| Commercial mortgage (term debt) | From ~6 to 8% pa |
| Development finance | ~9 to 12% pa |
| Commercial bridging | 0.65 to 1.0% per month |
A commercial scheme often uses all three across its life: a bridge to buy, development finance to build, and a commercial mortgage to hold the finished, let asset.
A fuller worked example: the all-in cost
Return to the £2.2m-cost scheme with a £1.54m senior facility. Over an 18-month build at 10.5 percent a year, rolled up, the cost of funds looks like this:
| Cost | Amount |
|---|---|
| Rolled-up interest (~18 months) | ~£200,000 |
| Arrangement fee (1.5%) | £23,100 |
| Valuation, monitoring, legals | ~£25,000 |
| Total cost of finance | ~£248,000 |
That all-in figure, not the headline rate, is what you weigh against the scheme's profit. We set it out on every offer so two deals can be compared properly.
How to compare two development finance offers
Two offers with the same headline rate can cost very different amounts. Compare the total cost of funds, not the rate alone:
- Interest over the realistic drawn period, not the full loan
- Arrangement and exit fees combined
- The true day-one advance after any retained interest
- Whether the term covers the build plus the sales or letting period
The keenest headline rate with heavier fees and a shorter term can easily be the more expensive deal.
When are rates higher, and when lower?
Rates rise with leverage, with letting or sales risk, with an unproven team, and where planning is not yet secured.
They fall with a strong margin, a pre-let or operator agreement, an experienced developer, a larger loan and a clear, fast exit. Improving any of these before you go to market lowers the rate you are offered.
How the wider rate environment affects pricing
Because most development facilities are priced as a margin over a reference rate, the underlying base rate feeds straight into what you pay.
When base rates are higher, development finance is dearer across the board and lenders test schemes against tougher interest assumptions. A scheme that works at today's rates with headroom is more fundable than one that only works if rates fall.
Can you reduce the rate after drawdown?
Yes, by refinancing once the risk falls away. As soon as a scheme reaches practical completion, the construction risk that justified the development rate has gone.
Development exit finance refinances the completed scheme onto cheaper, lower-risk debt while it sells or lets, and a term refinance onto a commercial mortgage cuts the rate again once the asset is income-producing.
Are there cheaper alternatives to development finance?
For the build itself, development finance is the appropriate product and there is rarely a cheaper like-for-like option, because the staged, construction-risk funding is exactly what the scheme needs.
The saving comes at the edges: use a bridge only for as long as the acquisition needs it, and refinance onto term debt or development exit finance the moment the build completes, so you are not paying construction-stage pricing a day longer than necessary.
Commercial development finance rates and costs: common questions
What is a typical commercial development finance rate?
Senior development finance for commercial schemes typically runs from around 9 to 12 percent a year, with stretch senior and mezzanine priced above that. The exact rate depends on leverage, scheme margin, sector and track record.
How is development finance interest calculated?
Interest is charged on the drawn balance, usually rolled up and repaid on exit. Because rolled-up interest is part of the facility, it is included in the loan-to-cost calculation from the outset.
Do commercial schemes cost more to fund than residential?
Not inherently. Pricing turns on certainty of exit. A pre-let or operator-backed commercial scheme can price below a speculative residential one.
What fees come with a commercial development loan?
An arrangement fee of around 1 to 2 percent, sometimes an exit fee, plus valuation, monitoring surveyor and legal costs. We set out the full cost of funds so you can compare offers.
How can I reduce my cost of capital?
Maximise sensible senior leverage before adding stretch, mezzanine or equity, secure a pre-let where possible, and refinance onto cheaper development exit or term debt once the scheme completes.
Ready to fund a scheme?
Send us the outline and we will come back with a view on fundability and likely terms within one working day.