A lender specialising in development finance has announced a new risk based approach to pricing loans, which will tailor interest rate charges to the specific development in question.

Hampshire Trust has revealed its new pricing model delivers an interest rate more aligned to the risks of development projects and rewards developers for early completion by reducing the interest margin by up to 2 per cent once the building work is completed and signed off.

Chief Executive Mark Sismey-Durrant commented: “We are very pleased to be able to offer this type of pricing structure and believe it gives us a niche within the existing market. Rather than taking a ‘tick box’ approach we aim to consider each case on its merits and price at a level to reflect risk in the transaction.”

To explain the new pricing method in more detail, we asked Hampshire Trust how it would charge at each stage of the following scenario:

A small residential development in the South East is scheduled to last one year. After three months foundations have been laid. After six months the shell of the building has been built. After nine months the project is nearly finished and buyers are being shown around initial finished parts.

B&C was told: “The scenario would be as follows for a small project within our preferred area and LTV 45 per cent to 50 per cent: Interest payable during the construction phase (approximately nine months) would be 9 per cent pa.

“Once the building work has been completed and signed off the interest rate would drop to 7.5 per cent pa for the remainder of the term.  The interest rate is dependent on circumstances and preferential rates may be available on projects closer to Hampshire or with a lower LTV.

“We will consider applications from across England but, as we feel visiting every site is important to fully assess the project, we prefer to concentrate on those that are within three hours of the Hampshire office.”