Development Finance Guide | An Insider’s Perspective
Are you considering a property development project but wondering how to finance it? Development finance is a powerful tool that enables investors, builders, and developers to bring their plans to life from small residential refurbishments to large-scale commercial builds. Unlike traditional mortgages, development finance is specifically structured to meet the unique needs of a project, offering staged funding designed to match the project’s progress.
In this guide, we’ll take you inside the world of development finance: how it works, who it’s for, and the key things you need to know before applying. Whether you’re a first-time developer testing the waters or a seasoned professional looking for smarter ways to fund growth, this insider’s guide will walk you through the essentials.
By the end, you’ll have a clear understanding of the benefits, risks, and strategies involved, helping you make confident, informed decisions about your next development.
1. What is Development Finance?
Development finance is a type of short-term loan used to fund residential or commercial property development projects, from ground-up new builds to heavy refurbishments or conversions.
It’s designed to:
Fund land purchases (with or without planning)
Cover construction costs
Help developers scale projects faster than using cash alone
2. How Does Development Finance Work?
Loans are usually released in stages, known as tranches, in line with construction progress.
Funds are drawn down after each stage, based on a Quantity Surveyor’s (QS) report
The interest is often rolled up, meaning you don’t pay monthly interest—it’s added to the loan and paid at the end.
3. Key Development Finance Terms Explained
| Term | Meaning |
|---|---|
| Loan-to-Cost (LTC) | Loan as a % of the total cost of the project (land + build + fees) |
| Loan-to-GDV (LTGDV) | Loan as a % of the projected Gross Development Value |
| Gross Development Value (GDV) | The expected final market value of the project on completion |
| Drawdowns | Staged payments as work progresses |
| Rolled-up Interest | Interest accrued and paid at loan redemption, not monthly |
| Exit Strategy | How the loan will be repaid (e.g. sale or refinance) |
| QS (Quantity Surveyor) | An independent party who verifies build costs and progress |
4. What Projects Can Development Finance Fund?
| Project Type | Eligible for Development Finance? |
|---|---|
| Ground-up residential builds | ✅ Yes |
| Commercial to residential conversions | ✅ Yes |
| HMOs & Multi-unit refurbishments | ✅ Yes |
| Light refurbishments | ❌ Usually not |
| Single-unit Buy-to-Let purchases | ❌ No |
| Mixed-use developments | ✅ Yes |
| Student accommodation builds | ✅ Yes |
5. What Lenders Look For
Lenders want confidence that:
You (or your team) have experience in development
The site has planning permission (or will soon)
The GDV is realistic and supported by comparables
You have contingency funds in case of overruns
You have a clear exit strategy
You’re putting in some equity (skin in the game)
6. Development Finance Process (Step-by-Step)
| Stage | What Happens |
|---|---|
| 1. Project Evaluation | You analyse land cost, build cost, GDV, timescales, and profit |
| 2. Application Submission | Submit proposal with project details, financials, and experience |
| 3. Offer in Principle | Lender provides indicative terms |
| 4. Valuation & QS Reports | Lender instructs valuation & QS to validate GDV and build cost |
| 5. Legal Process | Legal due diligence & loan agreement |
| 6. Drawdown & Monitoring | Funds released in stages after QS inspections |
| 7. Project Completion | All works completed, final QS sign-off |
| 8. Loan Repayment | Via sale or refinance |
7. Costs, Fees & Interest Explained
| Cost Type | Typical Range |
|---|---|
| Interest Rate (p.a.) | 7% – 12% (rolled up) |
| Arrangement Fee | 1% – 2% of the loan amount |
| Exit Fee | 1% – 2% of GDV or loan amount |
| Valuation Fee | £1,000 – £5,000+ |
| QS/Monitoring Surveyor | £1,000 – £3,000+ (ongoing) |
| Legal Fees | £1,000 – £2,500+ |
| Broker Fees | 1% – 2% (if applicable) |
➡ Tip: Always check whether interest is charged on drawn funds only or on the total facility.
8. Loan-to-GDV vs Loan-to-Cost
| Metric | What It Measures | Typical Max % |
|---|---|---|
| Loan-to-GDV | Loan amount as % of final GDV | ~65% |
| Loan-to-Cost | Loan as % of total costs | ~80%–90% |
Lenders use both to determine the maximum loan size. If either limit is hit, that’s the cap.
9. Mythbusters – Common Development Finance Myths
| Myth | Truth |
|---|---|
| “You need planning in place to apply” | Not always. Some lenders consider subject-to-planning deals |
| “Development finance is only for big developers” | No — small developers can access it too, even for 1–2 unit sites |
| “You need a massive deposit” | Some lenders offer up to 90% LTC, especially with experience |
| “Interest must be paid monthly” | Usually rolled-up, not paid monthly |
| “All lenders are the same” | Lender criteria & flexibility vary massively |
| “You can use bridge loans for any project” | Bridge loans aren’t structured for ground-up development |
10. How to Increase Your Chances of Approval
- Be transparent with numbers and experience
- Prepare a detailed development appraisal
- Show evidence of demand (GDV comparables)
- Clearly outline exit strategy
- Have a strong professional team (builder, architect, solicitor)
- Be ready to invest some of your own funds
11. Exit Strategies – How You’ll Repay the Loan
| Exit Option | Details |
|---|---|
| Sale of units | Sell all or part of the development to repay the loan |
| Refinance to BTL | Retain units & refinance onto a longer-term mortgage |
| Bridge-to-sell | Use a bridging loan to buy more time to sell units |
12. Top Tips for Developers
Don’t overestimate your GDV — lenders will verify with RICS valuations
Plan for a contingency buffer (usually 5%–10% of build cost)
Work with a broker or platform to compare the market
Choose lenders who are developer-focused, not just BTL lenders dabbling in development
Understand how interest is calculated
Build relationships with your lender and monitoring surveyor
13. Useful Tools & Resources
| Tool / Resource | Purpose |
|---|---|
| Brickflow | Compare development finance loans |
| Excel Development Appraisal Template | Track GDV, costs, profit, loan metrics |
| RICS Registered Valuers | For valuations |
| NHBC or Similar Warranties | Needed for new builds |
Development finance is a powerful enabler for property developers, but only when used wisely. Understand your costs, be realistic about timelines, and build a trusted team around you. With the right funding partner and preparation, your next project could be your most profitable yet.
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