Development Finance Guide – An Insider’s Perspective. Are you planning a property development and exploring funding options? Development finance is a specialist form of lending designed to support property developers, investors, and builders at every stage of a project. It is commonly used for residential refurbishments, conversions, and large-scale commercial developments.
Unlike standard mortgages, development finance is structured around the project’s progress. Funds are released in stages, which helps manage cash flow and align borrowing with construction milestones.
In this guide, we explain development finance in clear and practical terms. You will learn how it works, who it is suitable for, and what lenders look for when assessing an application. Whether you are new to development or already experienced, this guide will help you approach funding with confidence.
You may also benefit from speaking to a specialist adviser. Working with experienced development finance brokers can help you understand lender criteria and structure funding correctly from the outset.
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
Understanding development finance terminology helps you make informed decisions before applying for funding. Below are the most common terms used by lenders and advisers.
- Loan-to-cost (LTC): The percentage of the total project cost a lender is willing to fund. This includes land purchase, build costs, and professional fees.
- Loan to Gross Development Value (LTGDV): Loan to Gross Development Value is the percentage of the expected final value of the development that the lender will advance once the project is complete.
- Gross Development Value (GDV): The estimated market value of the property or site after all works are completed and the development is finished.
- Drawdowns: Staged loan payments are released as the build progresses. Each stage is usually approved after a site inspection.
- Rolled-Up Interest: Interest is added to the loan balance and paid at the end of the term. Monthly interest payments are not required during the build period.
- Exit Strategy: An exit strategy explains how the development finance loan will be repaid. This is usually through the sale of the property or refinancing into a longer-term mortgage. A clear exit strategy is essential when working with an expert development finance adviser.
- Quantity Surveyor (QS): A Quantity Surveyor is an independent professional appointed by the lender. They assess build costs, monitor progress, and confirm when drawdowns can be released.
If you are unsure how these terms apply to your project, a specialist adviser can help. You can use our “Find a Mortgage Adviser” tool to speak with experts experienced in development finance.
What Projects Can the Development Finance Fund Fund?
Development finance is designed for complex and large-scale property projects. Lenders assess eligibility based on risk, experience, and projected value.
Ground Up Residential Builds
Yes. Development finance is commonly used to fund new residential builds from the ground up.
Commercial to Residential Conversions
Yes. Projects converting offices, shops, or other commercial buildings into residential units are often suitable.
HMOs and Multi-Unit Refurbishments
Yes. Large refurbishments involving multiple units or HMOs can qualify, subject to lender criteria.
Light Refurbishments
Usually no. Minor works are more commonly funded through bridging finance rather than development finance.
Single Unit Buy to Let Purchases
No. Standard buy-to-let mortgages are typically used for these transactions.
Mixed Use Developments
Yes. Projects that include both residential and commercial elements may be eligible.
Student Accommodation Developments
Yes. Purpose-built student accommodation is often funded through development finance, depending on location and demand.
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 |
What Lenders Expect From a Strong Development Finance Application
To secure development finance, lenders expect clear evidence that the project is well planned, realistic, and financially viable. Working with an expert mortgage broker in the UK can help ensure your application meets lender requirements from the outset. Below are the key areas lenders assess when reviewing a development proposal.
Transparency and Financial Experience
Lenders expect full transparency at every stage of the application. This includes a clear breakdown of costs, timelines, and expected returns. If you have completed previous projects, provide accurate figures and outcomes. This helps lenders assess your experience and ability to deliver the development successfully. An expert mortgage broker in the UK can help present this information in a format lenders recognise and trust.
Detailed Development Appraisal
A professional development appraisal is essential. This should include build costs, professional fees, contingency, and projected timelines. The appraisal must be realistic and supported by credible assumptions. Overly optimistic figures can delay or weaken an application. You may benefit from speaking with a development finance adviser who understands lender expectations and current market conditions.
Evidence of Demand and GDV Comparables
Lenders require evidence that the finished development is achievable at the projected value. This is typically supported by comparable sales data and realistic Gross Development Value estimates. Comparable properties should be recent, relevant, and located close to the subject site. This demonstrates genuine demand in the local market. A mortgage adviser near you can help source and present appropriate comparables where required.
Clear Exit Strategy
Every development finance application must include a clear exit strategy. Common exits include selling the completed units or refinancing into a long-term mortgage. The exit should be realistic and supported by market evidence. Lenders will assess whether the exit aligns with current lending criteria. Discussing exit options early with a UK mortgage broker can reduce delays later in the process.
Strong Professional Team
Lenders expect to see an experienced professional team in place. This usually includes a qualified builder, architect, and solicitor with relevant project experience. Providing details of your team’s completed projects can strengthen confidence in delivery. This is particularly important for larger or more complex developments.
Personal Financial Commitment
Most lenders expect borrowers to invest some of their own funds into the project. This demonstrates commitment and helps align risk between all parties. The required contribution will vary depending on the lender, project type, and overall risk profile. Your adviser can explain typical expectations and help structure the finances correctly.
Practical Tips for Property Developers
Successful development finance starts with realistic planning and expert support. These practical tips can help reduce risk and improve lender confidence. Avoid overstating your gross development value.
Lenders will rely on independent RICS valuations to confirm figures.
Allow for a contingency buffer within your budget. Most lenders expect between five and ten per cent of the total build costs. Work with a specialist development finance broker or a trusted platform to compare lenders across the market. This improves access to competitive terms and suitable funding structures.
Choose lenders that focus on property development finance. Not all buy-to-let lenders have the experience to support development projects. Understand how interest is charged. Development finance interest is often rolled up or serviced monthly, which affects cash flow.
Build strong relationships with your lender and the monitoring surveyor.
Clear communication helps avoid delays and unexpected cost issues.
Useful Development Finance Tools and Resources
Using the right tools can support better planning and decision-making throughout your project.
Brickflow
Used to compare development finance loans from multiple lenders.
Development appraisal spreadsheets
Useful for tracking gross development value, build costs, profit margins, and loan metrics.
RICS registered valuers
Required for accurate valuations and lender approval.
NHBC or equivalent warranties
Typically required for new build developments and property sales.
Using Development Finance Effectively
Development finance can be a powerful tool when used correctly.
It works best when costs are well understood, and timelines are realistic.
Surround yourself with a trusted professional team.
This often includes a broker, solicitor, valuer, and monitoring surveyor.
With the right preparation and funding partner, development finance can support profitable and repeatable projects.
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. |
People Also Browse These Guides
“Hi, I’m Liz Syms, the Chief Executive Officer and founder of Connect Mortgages and Connect for Intermediaries. If you are a mortgage broker looking to join a network, we welcome you to join our!
Choose the option that suits you best:
Option 1: Schedule a call with our Business Recruitment Manager
Option 2: Complete our contact form
Option 3: Call us
