What is development finance?
Development finance is a type of short-term, secured lending designed specifically for property development projects in the United Kingdom. Unlike a standard mortgage, development finance is structured around the build programme — funds are drawn down in stages as construction progresses, and the loan is repaid when the completed units are sold or refinanced onto a long-term facility.
It is used for ground-up new-build construction, heavy refurbishment, conversion projects (such as commercial-to-residential under permitted development rights), and land acquisition with planning permission.
How does development finance work?
A development finance loan is typically structured in two parts: a day-one advance (to cover land purchase or existing debt) and a build facility (drawn down in tranches as work progresses). The lender appoints a monitoring surveyor who visits the site at each drawdown stage, confirms the work has been completed to the required standard, and authorises release of the next tranche.
Interest is usually rolled up (added to the loan balance) rather than serviced monthly, which means the borrower does not need to make monthly payments during the build. The full balance — principal plus rolled-up interest — is repaid on exit, typically from sales proceeds or refinance.
Key metrics lenders assess
Development finance lenders evaluate deals using several key ratios:
- Loan-to-Gross Development Value (LTGDV) — the total facility as a percentage of the completed project value. Most lenders cap this at 60–70%.
- Loan-to-Cost (LTC) — the total facility as a percentage of total project costs (land + build + fees). Typically 80–90%.
- Profit on cost — the developer's profit margin as a percentage of total costs. Lenders generally want to see 15–20% minimum.
- Day-one loan-to-value (LTV) — the initial advance as a percentage of current site value.
Who uses development finance?
Development finance is used by a range of borrowers, from experienced developers building 50+ unit schemes to first-time developers converting a single house into flats. The market includes:
- SME property developers building 1–150 units
- Experienced landlords moving into development
- Housing associations and registered providers
- Commercial developers building offices, retail, or mixed-use schemes
- Developers working on permitted development conversions
How much does development finance cost?
Rates vary depending on the lender, scheme, and borrower experience. As a general guide in the current UK market:
- Interest rate: 8–14% per annum (rolled up)
- Arrangement fee: 1–2% of the total facility
- Exit fee: 0–1.5% of the total facility
- Monitoring surveyor: £500–£1,500 per visit
- Valuation: £2,000–£10,000+ depending on scheme size
How to apply for development finance
The application process typically requires a detailed information pack including: site details and title information, planning permission documentation, a cost schedule or QS report, architect's drawings, a development appraisal, and borrower CV or track record. Lenders want to understand the scheme, the numbers, and the person behind the project.
Platforms like Assesr automate much of this process — packaging your deal into a lender-ready credit paper and matching it to lenders whose mandate fits the scheme, reducing the typical 6–12 week packaging process to hours.
Development finance vs bridging finance
Bridging finance and development finance are sometimes confused, but they serve different purposes. Bridging loans are short-term loans secured against existing property, typically for acquisition, chain-breaking, or light refurbishment. Development finance is specifically structured for construction projects with staged drawdowns and monitoring.
If your project involves significant building works (new build, extension, conversion), you almost certainly need development finance rather than a bridge.
Frequently asked questions
Can I get development finance as a first-time developer?
Yes, although your options may be more limited and rates higher. Many lenders will fund first-time developers if the scheme is straightforward, the borrower has relevant experience (construction, property management), and the numbers are conservative. Some lenders specialise in backing new developers.
How long does development finance take to arrange?
Traditionally, 6–12 weeks from initial enquiry to drawdown. This includes packaging the deal, lender review, valuation, legal due diligence, and documentation. Using technology to pre-package deals can significantly reduce this timeline.
What happens if my build goes over budget?
Most lenders build contingency into their assessment (typically 5–10% of build cost). If costs exceed the facility, the borrower may need to inject additional equity or negotiate a facility increase with the lender. This is why realistic cost planning and adequate contingency are critical from the outset.