Defining the spectrum
Property development exists on a spectrum from light cosmetic refurbishment through to ground-up new construction. Where a project sits on this spectrum determines the type of development finance available, the rates and terms offered, and the risk profile assessed by lenders.
Light refurbishment involves cosmetic improvements to an existing property without structural changes: redecoration, new kitchens and bathrooms, flooring, and minor repairs. This type of work is typically funded through bridging finance rather than development finance, with terms reflecting the lower risk and shorter timescales.
Heavy refurbishment involves significant structural work: internal reconfiguration, extensions, change of use conversions, underpinning, roof replacement, or rewiring and replumbing. This crosses into development finance territory, as the scale of work requires staged drawdowns and monitoring surveyor oversight.
New build involves ground-up construction on cleared or undeveloped land. This is the core market for development finance, with the full range of products, rates, and terms available from specialist lenders.
Rates and terms compared
Light refurbishment bridging finance typically costs 8% to 12% per annum with terms of 6 to 18 months. Heavy refurbishment development finance ranges from 8.5% to 12% per annum with terms of 12 to 24 months. New build development finance ranges from 8% to 13% per annum with terms of 15 to 30 months.
The apparent rate similarity masks important differences. Refurbishment facilities are typically smaller in absolute terms (lower build costs), shorter in duration (quicker build programmes), and simpler to administer. This means the total finance cost — the actual pounds spent on interest and fees — is usually lower for refurbishment than for new build, even if the annual rate is similar.
Leverage (LTC and LTGDV ratios) is broadly similar across both types, typically 65-75% LTC and 60-65% LTGDV. Some lenders offer slightly higher leverage for refurbishment projects where the existing building provides day-one security value, compared to a bare site for new build. The existing structure has value that the lender can rely on even if the project stalls.
Arrangement fees for both types typically range from 1.5% to 2.5% of the facility. Exit fees of 0.5% to 1.5% are standard. Monitoring surveyor costs are lower for refurbishment (fewer inspections, less complex assessment) than for new build, which reduces the borrower's overall cost.
Risk profiles: what lenders worry about
Refurbishment risks. The primary risk in refurbishment is discovery risk — what you find when you open up the building. Structural defects, asbestos, damp, rot, outdated wiring, and inadequate foundations can all emerge during the works, adding cost and time. Lenders price this uncertainty through contingency requirements (typically 10-15% of build cost) and careful assessment of the developer's experience with similar projects.
New build risks. New build risks are different but not necessarily greater. Ground conditions, planning compliance, contractor performance, and weather are the primary concerns. These risks are generally more predictable than refurbishment risks, as ground investigations and structural engineering provide reliable data before construction begins. However, the absolute cost of any problem is typically higher in new build due to the larger project scale.
Planning risk. Refurbishment often benefits from permitted development rights (particularly for change-of-use conversions under Class MA, O, and others), reducing planning risk significantly. New build always requires planning permission, and the planning process carries inherent uncertainty. Lenders view PDR-backed refurbishment favourably because the planning risk is largely eliminated.
Which type has better margins?
Developer margins vary by project, but refurbishment schemes can offer attractive returns relative to the capital deployed. The lower build costs, shorter timescales, and reduced planning risk mean that developers can achieve 15-25% profit on cost for well-executed refurbishment projects, with capital recycled more quickly than in new build.
New build projects typically target 15-20% profit on GDV (which translates to 20-30% on cost), but the longer timescales and higher absolute capital requirement mean the return on equity (when annualised) may be similar to or lower than refurbishment. The larger absolute profit on new build compensates for the longer capital commitment.
For development finance purposes, the key comparison is the relationship between build cost, GDV, and developer profit. Lenders want to see adequate profit margin (typically minimum 15% on GDV for new build, 20% on cost for refurbishment) to ensure the scheme can absorb adverse movements in costs or values without becoming loss-making.
Lender preferences
Most development finance lenders fund both refurbishment and new build, but some have preferences. Larger lenders and banks tend to favour new build because the deals are bigger (generating more fee income), more standardised, and easier to benchmark. Smaller and specialist lenders may prefer refurbishment because the deals are simpler, the timescales are shorter, and the capital is recycled faster.
Some lenders specialise in specific refurbishment types — permitted development conversions, HMO conversions, heritage building restoration — and offer competitive terms for these niches. Identifying lenders with specific appetite for your project type is more important than choosing between a generic "refurbishment lender" and a "new build lender."
When structuring your finance application, present the project clearly within its category. If the scheme is a heavy refurbishment that is practically a new build (retaining only the facade, for example), present it as such — lenders assess the actual scope of work, not the label attached to it. Misrepresenting a new build as a refurbishment to access cheaper finance will be discovered during due diligence and damage credibility.
Making the right choice
The choice between refurbishment and new build should be driven by the site, the market, and the developer's skills — not by finance considerations alone. Refurbishment works best where there is a suitable existing building, where the conversion creates value, and where the developer has experience managing the discovery risks inherent in working with existing structures.
New build works best where the site is clear or the existing buildings have no conversion value, where the market demands a specific product that can only be delivered through new construction, and where the developer has the experience, resources, and patience for the longer development timeline.
Both routes can achieve strong returns and attract competitive development finance terms. The key is presenting the right deal to the right lender — matching the project's characteristics to lenders whose appetites and expertise align with what you are proposing.