How development finance works
Development finance is fundamentally different to a standard mortgage. Rather than lending a lump sum against an existing property, the lender is funding a project — providing money in stages as work progresses, against the value the project will create.
The starting point is the project appraisal: what’s the land or acquisition cost, what will the build cost, and what will the completed development be worth? From there, the lender assesses how much they’re willing to fund and on what terms. The borrower’s contribution, the strength of the professional team, and the credibility of the exit strategy all feed into that assessment.
What development finance covers
Development finance can be used across a wide range of project types:
- Ground-up residential development — new build houses or flats, from a single dwelling to a small site of 10–20 units
- Commercial to residential conversion — office blocks, former industrial buildings, or mixed-use buildings being converted to residential under permitted development or full planning
- Heavy refurbishment — properties requiring significant structural work, reconfiguration, or extension that go beyond what a standard mortgage or bridging loan would cover
- Mixed-use development — schemes combining residential and commercial elements
- Self-build — individuals building their own home, where a specialist self-build mortgage or development finance facility funds the construction in stages
How lenders assess development finance
The central metrics lenders use are:
Loan to Cost (LTC)
The total loan as a percentage of total project costs — land plus build. Most lenders will fund up to 70–75% of total costs, meaning the developer needs to contribute 25–30% of the total cost themselves (or through additional security).
Loan to GDV
The total loan as a percentage of the completed project’s projected value. Most lenders cap this at 65–70% of GDV, which acts as a safety net regardless of costs.
Day one land advance
The amount the lender will release on day one to fund the land or property purchase. This is often lower than the overall LTC — typically 60–70% of the purchase price — which is why having equity, additional security, or cash to bridge the gap matters.
Land purchase: £400,000 — day one advance at 65% = £260,000
Build costs: £600,000 — released in drawdowns
Total project cost: £1,000,000
GDV (end value): £1,500,000
Max loan at 70% GDV: £1,050,000 — covering 105% of project costs in this example
The GDV cap can allow significant leverage on well-priced projects. The numbers need to stack up before a lender commits.
Drawdowns and monitoring
Once the facility is agreed, funds are not released all at once. The build costs element is drawn down in stages — typically tied to construction milestones such as foundations complete, first fix, second fix, and practical completion.
The lender appoints a monitoring surveyor (sometimes called a project monitor or QS) who visits the site at each milestone, assesses the work completed, and certifies the drawdown request. This protects the lender but also gives the borrower a structured framework for the project.
Interest is charged only on funds actually drawn, not the full facility — which reduces the cost of carry during the build.
The importance of the professional team
Lenders don’t just assess the project — they assess the people delivering it. A first-time developer with an experienced main contractor, a reputable architect, and a well-prepared project programme is in a different position to someone planning to manage an inexperienced team.
If you’re newer to development, having the right people around you isn’t just good practice — it can be the difference between getting a facility and being declined. We can advise on what lenders look for in a team and how to present your case in the strongest possible way.
Planning — do you need it before applying?
For most development finance, full planning permission is required before a lender will commit. Some lenders will provide a loan against a site with permitted development rights (PDR), which is slightly different — PDR is a pre-approved right to convert certain property types without needing full planning, and some lenders are comfortable with this.
A small number of lenders will provide finance at the pre-planning stage, sometimes called a land loan or speculative development facility, but these are less common and carry more risk for all parties.
Exit strategy
The exit strategy — how you repay the development loan at the end — is a critical part of the application. Lenders want to understand from day one how they’re getting their money back.
Common exit routes include:
- Sale of completed units — the most straightforward exit. The lender will want to see evidence of market demand and comparable sales in the area.
- Refinance to buy-to-let — retaining the completed units as a rental portfolio and refinancing to standard buy-to-let mortgages. Lenders will want to see that the rental income will support the refinanced position.
- Refinance to commercial mortgage — for mixed-use or commercial schemes.
- Combination — selling some units and retaining others is common on multi-unit schemes.
We work with both the development lender and, where relevant, the exit finance lender — making sure both sides of the transaction are properly aligned from the outset.
Can you get 100% development finance?
Not in the strict sense, but some developers get close through structuring. Using additional security — equity in another property, for example — can increase what a lender is willing to advance. Joint venture arrangements, where a funding partner contributes equity in exchange for a profit share, are another route. See our blog post on whether 100% development finance is possible for a detailed explanation.
Whether you’re at the land acquisition stage or about to break ground, call us on 01277 564 054 to talk through your project.
Our fees for development finance advice
No charge for initial conversations or an initial project review. A broker fee will apply depending on the complexity and size of the facility — this is always confirmed and agreed clearly before you proceed. See our full fee schedule.
Frequently asked questions
Specialist short-term lending for property construction, conversion, or significant refurbishment. Funds are released in stages as the build progresses rather than as a single lump sum.
Lenders assess the overall viability of the project — land or purchase cost, build costs, projected end value (GDV), and the exit strategy. Personal income plays a smaller role than in residential lending.
Gross Development Value — the projected value of the completed development. Lenders use GDV as a key metric for how much they’re willing to lend relative to the end value of the project.
Not always. Some lenders will consider first-time developers on smaller projects, provided the professional team around them is experienced. Others require a track record.
In stages (drawdowns) as construction milestones are reached. A monitoring surveyor visits the site and approves each release. Interest is only charged on funds drawn, not the full facility.
How the development loan will be repaid at the end of the project — typically through selling the completed units, refinancing to a buy-to-let or commercial mortgage, or a combination.
Not in the traditional sense — but by using additional security or structuring the deal carefully, some borrowers achieve close to 100% of project costs. See our blog post on this topic for more detail.