Development finance funds a ground-up build or a heavy conversion, released in stages as the work progresses and repaid when the finished scheme is sold or refinanced.
A development loan usually has two parts: a land or purchase element, advanced at the start,
and a build element, released in tranches as a monitoring surveyor confirms each stage of work is
complete. You pay interest only on what has been drawn. Interest is commonly rolled up into
the loan and paid at the end, because a site under construction produces no income to pay it from.
The measures lenders use
Loan to cost (LTC): the loan as a share of the total cost of land and build. The
developer funds the rest as equity.
Loan to gross development value (LTGDV): the loan as a share of what the finished
scheme is expected to be worth. This caps the loan against the end value.
Exit: how the loan will be repaid, normally by selling the units or refinancing onto a
term loan or commercial mortgage once the scheme is let.
The costs, all of them
On development finance the fees can matter as much as the rate. Expect some combination of an
arrangement fee, an exit fee, valuation and monitoring surveyor fees, and the lender’s legal
costs. Because interest rolls up, the cost compounds over the build. Ask every lender for a full
cost schedule over the realistic build period, including a delay of a few months, and compare
those.
What lenders want to see
Planning permission, and a realistic build programme and budget with contingency.
Your track record. First-time developers can borrow, often at lower leverage and with an
experienced contractor or project manager on the team.
Evidence for the end value: comparable sales, an agent’s appraisal, and the
lender’s own valuation.
The equity you are putting in.
Development finance or bridging?
A light refurbishment of an existing building is often funded with a
bridging loan, sometimes with funds for works. A ground-up
build or structural conversion, where the money must follow the work, is development finance.
Products: Property development finance: new build, conversion, refurbishment
Amount
£1m to £50m
Term
Up to 30 months
Max LTV / LTGDV
Maximum of 65% of the gross development value (GDV)
Rate
Priced per quote
Fees, eligibility and full wording
Fees
Not published
Eligibility
Not published
5 providers, each read on its own website on the date shown. None of them publishes a headline rate; every one prices per business. “Not published” and “Priced per quote” mean exactly that: the provider does not state the figure, so we do not estimate one.
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Loan to gross development value: the loan divided by the expected value of the finished development. Lenders cap their loan at a percentage of it so that the end value covers the debt with a margin.
How is interest paid on development finance?
Usually rolled up and paid on exit, from the sale or refinance, because the site earns nothing during the build. Interest is charged on the money drawn, not the full facility.
Can a first-time developer get development finance?
Some lenders lend to first-time developers, generally at lower leverage and with an experienced professional team. Lender criteria are shown in the table where published.
