We regularly do polls of aspiring property developers, asking them what are the biggest challenges they face. We get lots of different responses, but obtaining funding for deals is always one of the most common challenges identified.

And it's true - when it comes to property development, your borrowing costs can make or break a project.

So how can you get a better interest rate when you're borrowing for property development?

Often, developers focus primarily on land acquisition, design, and sales strategies, even though the interest rate they secure from their lender can be just as important.

The most well-designed and strategically located development can fail if borrowing costs eat away at profits.  A better rate can mean hundreds of thousands of dollars saved over the life of a project.

So how do you secure the most favourable interest rate? It comes down to preparation, negotiation, and understanding how lenders assess risk.

See It From the Lender’s Side

Lenders have one big question: “How risky is this deal?” The interest rate you are offered is directly tied to how risky your project and your financial position appear to them. Lower the perceived risk, and the rate will follow.

What makes them nervous?

• A big loan compared to the value of the site
• Developers with little track record
• Vague or optimistic numbers
• No clear plan if things go wrong

On the flip side, if you show them you’ve thought it all through, have some equity in the deal, and a track record of delivery, you immediately become a safer bet. Safe bets get better rates.

So the key here is the lender wants certainty of exit in order to reduce or eliminate their risk. And the easiest way to give them that certainty is...

Presales

A presale is when you sell units “off the plan” before construction is complete. Buyers commit to purchasing at an agreed price, often with a deposit paid upfront, and settlement happens once the project is finished.

Most lenders want to see presales before they advance funds. In fact, presales are often a formal condition of development finance.

To understand why presales matter, you need to think like a lender. When a bank or private lender funds your project, they’re essentially taking a bet on your ability to deliver and sell. Until units are sold and money is in the door, they’re carrying the risk.

Presales guarantee that, on completion, money will flow in to repay the debt. The more presales you have, the safer the project looks. The safer the project looks, the better the rate you can negotiate.

Think of presales as bargaining chips. The more you’ve locked in, the stronger your position when negotiating finance.

Presales don’t just reduce your interest rate, they can improve other parts of your finance deal:

• Lower equity requirement: Lenders may reduce the amount of developer equity needed if presales are strong.
• Higher gearing: You might access a larger loan if presales are above expectations.
• Flexibility on terms: Better presales can mean softer conditions, like lower line fees or reduced exit charges.

There's a lot more to off the plan sales, which I've covered in this article - "Selling Off the Plan - What Beginners Need To Know"

Presales are probably the biggest tool you have for getting a better deal from your lender, but there are some other things to consider as well.

​​​​​​​Prepare a Strong Development Proposal

Walking into a negotiation with vague numbers and half-formed plans is a sure way to be offered a higher rate. Lenders want to see professionalism and certainty.

Your proposal should include:

• Detailed feasibility report
• Comparable market sales evidence
• Development timeline
• Professional team list

The more comprehensive your proposal, the less risky you look. And less risk equals better rates.

Strengthen Your Financial Position

It’s not just about the project - lenders also look at you. They want to see that you’ve got some skin in the game and can handle setbacks.

Here are some ways to look stronger:

• Tip in more equity if you can
• Keep your other debts under control
• Show access to cash reserves
• Partner with someone who’s got experience or financial muscle if you’re light on one of those

The stronger your personal position, the less nervous the lender will be, and that translates to a cheaper loan.

​​​​​​​Shop Around

Having a development-savvy broker is a major factor in getting the best finance deal. Development finance is a niche area, and a regular mortgage broker may not have the expertise or connections to negotiate the best deal for you.

Specialist development finance brokers, however, deal with these transactions daily. They can share your deal with lenders you wouldn’t find on your own. They'll package up your deal in a way lenders like and push back hard on fees and rates on your behalf.

While brokers charge fees or receive commissions, if they can save you half a percent on a $5 million facility, as an example, that’s money well spent.

Look Beyond The Interest Rate

The interest rate is important, but it’s not the whole story. Development finance often comes with lots of extra fees.

• Establishment fees
• Line fees on money you haven’t drawn yet
• Exit fees when you refinance or sell
• Legal and valuation costs

Always look at the full financing package, not just the interest rate. Sometimes, a loan with a slightly higher interest rate but lower fees ends up being cheaper overall.

Managing Risk

I've already talked about managing risk with presales, but there are other risks - cost blowouts, construction delays or sluggish sales, to name a few. Lenders know this, but showing them you've thought about these risks and taken steps to manage them will help the lender feel more comfortable.

Make sure you can show things like:

• A contingency buffer in your budget
• A fixed-price building contract
• Insurances are in place
• A backup plan (like renting units out if sales slow)

Every risk you cover off gives the lender one less reason to load up your rate.

Getting a better rate for your development finance isn’t about being a financial genius, it’s about being prepared, reducing risk, and giving lenders confidence.

Margins in development are tight enough without giving away profit in interest. Play it smart, and you’ll not only fund your project but protect your bottom line at the same time.