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.
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
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.
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 |
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 |
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)
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 |
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.
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.
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 |
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
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
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.
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 |
FAQ: Development Finance Guide
| Question | Answer |
|---|---|
| What is development finance? | Development finance is a short-term funding option designed for property developers who need capital to purchase land or finance construction projects. It covers costs from land acquisition to build completion. |
| Who can apply for development finance? | It is suitable for professional developers, investors, and even first-time builders who have a solid project plan and exit strategy. Most lenders assess experience, project viability, and financial standing. |
| How does development finance differ from a bridging loan? | Bridging loans are usually for quick property purchases or chain breaks, while development finance funds construction or renovation projects in stages as work progresses. |
| What types of projects can development finance cover? | It can fund residential developments, commercial property builds, mixed-use schemes, and conversions such as offices to flats or barn restorations. |
| How much can I borrow through development finance? | Most lenders offer up to 60 to 70 percent of the gross development value (GDV). Some may provide additional funding for build costs depending on project risk and experience. |
| What is the typical term for a development finance loan? | Terms usually range between 6 and 24 months. The length depends on the scale of the project, build timeline, and exit strategy. |
| How are funds released during the project? | Funds are drawn in stages based on independent surveyor inspections to confirm progress. This ensures money is released only as the development advances. |
| What is an exit strategy and why is it important? | The exit strategy outlines how the loan will be repaid at the end of the project. Common options include selling the completed property or refinancing onto a longer-term mortgage. |
| Do I need planning permission before applying? | Yes, most lenders require full planning permission before releasing funds. However, some may consider lending on properties awaiting approval if the application is advanced. |
| What costs are involved in development finance? | Costs include arrangement fees, valuation fees, legal fees, and monthly interest. Interest is often rolled up and paid at the end of the loan term. |
| Can I get 100 percent development finance? | Rarely, but some lenders may consider full funding if you offer additional security or partner with a joint venture funder who shares in project profits. |
| How long does approval take? | With complete documentation, lenders can issue an agreement in principle within 48 hours and full approval within 2 to 4 weeks. |
| What documents do I need for an application? | You will need a detailed development appraisal, planning permission, cost schedule, proof of experience, and exit strategy. |
| Is development finance available for first-time developers? | Yes, but lenders may require additional guarantees, stronger credit profiles, or experienced contractors to reduce perceived risk. |
| Can development finance cover renovation or conversion projects? | Yes, many lenders support refurbishment and conversion projects where there is a clear uplift in property value once complete. |