Finding the lowest cost construction finance in Australia

The cost of construction finance can vary significantly.  To understand more about the extent of variation and to discover how to find the lowest cost offers, our team surveyed 80 first mortgage non-bank construction lending products.  

The breakdown of the research sample was:

• 56 non-bank lenders (no big banks)

• 80 loan products

• Senior debt with first mortgage security

• Construction finance

• Deal sizes from $25k to $100M

The three big insights that can make a difference to the cost of construction finance were:

 1.      There is a huge variation in coupon rates, from 2.0% up to 15.0%.

 2.      Line fees showed less variation.  Almost 50% of lenders offer rates that featured 0% line fees.

3.      Establishment fees are relatively consistent.  Most products require 1.65% to 2.2% (including GST) of the gross loan amount.

To bring this to life, let’s illustrate this data with an example.  We modelled a $5M lend over 18 months and compared total financing fees. 

We were able to find a fee structure available for 3.65% interest with 0.0% line fee and 0.03% establishment fee, which yielded $158k in total financing fees.  Sounds great, but the deal is loaded with conditions that make it no better than going through a big bank. 

More realistically, we found several deals in the $225k to $250k range.  These deals were typically around 4.5% interest with no line fee and a 0.75% establishment fee.  While attractive, these deals would only be accessible to the strongest, best established borrowers.  

The average finance cost was $488k, reflecting 8.5% to 9.9% interest rate, 0.0% to 1.0% line fee, and 1.65% to 2.20% establishment fee.  This is where most projects are going to end up in the current market environment.

When it comes to weak or distressed borrowers and to projects in more regional locations, total fees ranged up to $800k, with rates as high as 15.0%, line fees as high as 4.0% and establishment fees of 2.2%.  

As you can see from our data, the range of rates and fee structures available in the Australian market is very wide, with access primarily determined by the location, size of the deal and financial strength of the borrower.

Having this knowledge allows borrowers and brokers to better navigate the market and negotiate better deals. At FundingFinder, we believe that it’s essential for our clients to have visibility of all elements of the loans.  We provide a free, searchable database of all the non-bank lending products we’ve been able to identify in the Australian market to empower our clients to locate the best loan to suit their particular needs.   Go to www.fundingfinder.com.au and see what funding solutions are available for your construction project.