Build to rent finance rates and costs

Build to rent finance rates and costs

The cost of build-to-rent finance is more than the rate a lender quotes. The headline margin matters, but so do the fees that sit alongside it, the way interest is charged, and the leverage and risk that drive the whole package. A developer comparing two offers on rate alone can easily pick the dearer one once the fees and structure are added in. This guide sets out the components so the all-in cost is clear, and explains what moves it up or down, so a developer can prepare a scheme that prices keenly.

The first thing to understand is that development finance and investment finance price differently, because they carry different risks. Development finance funds a scheme that does not yet exist and earns nothing while it is built, so it is dearer. Investment finance sits on a finished, let scheme with proven income, so it is keener. A scheme typically pays the development rate during the build and a lower investment rate once stabilised, which is one reason the exit and refinance are worth planning carefully.

How the rate is built: margin over SONIA

Most build-to-rent finance is priced as a margin over SONIA, the Sterling Overnight Index Average, rather than as a flat fixed rate. The all-in rate is the reference rate plus the lender's margin, so it moves with the base cost of money as well as the lender's view of the scheme's risk. For development finance, the indicative all-in cost is often around 7 to 10 percent. For term investment finance on a stabilised scheme, the margin is lower because the income is proven and the risk is lower.

On development finance, interest usually rolls up rather than being paid monthly, because a scheme under construction earns no rent. The rolled-up interest is included in the facility and repaid at the exit, which means the loan balance grows over the term and the appraisal must allow for it. We model the rolled-up cost into the cash flow so the developer sees the true cost of the facility, not just the headline margin. All these figures are indicative, vary by lender and scheme, and are never an offer of credit.

The fees alongside the rate

The rate is only part of the cost. A build-to-rent facility carries a set of fees that a developer should budget for from the outset, because together they add meaningfully to the all-in cost. The table below sets out the typical fee lines on a development facility.

Where a mezzanine layer is added to stretch leverage to around 80 to 90% loan to cost, it carries a higher coupon than the senior debt, so the blended cost across the two layers is higher than the senior rate alone. We always model the blended cost of the whole capital stack, because the extra leverage from mezzanine has to earn its place against the higher cost it brings.

What moves the all-in cost up or down

The rate and fees a scheme attracts are not fixed; they reflect the risk the lender sees, and a developer can influence several of the drivers. The biggest is leverage: a loan at the top of the loan to cost or loan to GDV range prices higher than a more conservative one, because the lender's cushion is thinner. The strength of the build contract matters too: a fixed-price contract with an experienced contractor contains cost risk and prices keener than an open-ended arrangement.

Planning status, the developer's track record and the strength of the exit all feed in. Full consent, a delivered pipeline and a committed buyer reduce risk and earn keener terms; a scheme awaiting planning, a first-time developer or a speculative exit pushes the cost up. The wider market matters too: as debt costs ease and yields are expected to compress into 2026 (Knight Frank, Savills), the backdrop for build-to-rent finance is improving, though every scheme is priced on its own merits.

Comparing offers on the all-in cost

The right way to compare build-to-rent finance offers is on the all-in cost over the life of the facility, not the headline margin. An offer with a keen rate but a high arrangement fee, a punishing exit fee or a low leverage that forces in expensive mezzanine can cost more than a slightly dearer headline rate with lighter fees and better leverage. The rolled-up interest, the fees, the leverage and the exit terms all belong in the comparison.

As an arranger we model the all-in cost across competing offers so the developer sees the true picture, and because we know which lenders are currently keenest on a given profile, we take the case to the funders most likely to price it well. That usually moves both the rate and the fees in the developer's favour. All figures in this guide are indicative ranges for illustration, vary by lender and scheme, and never constitute an offer of credit. We arrange and introduce the finance and do not lend.