Development finance is short-term lending that funds the building of property — ground-up schemes on land with planning permission, and substantial conversions such as offices to residential. The lender advances part of the site cost on day one, funds the build in stages as work completes, and is repaid when the finished scheme is sold or refinanced. Propertyze arranges development finance across 135+ lenders, from single-unit schemes to multi-phase sites.
This page covers how the product works, what it costs, how lenders size a facility and what they look for in a borrower — with a worked example you can test against your own numbers in our development finance (GDV) calculator.
Type your figure or drag the slider, switch the deal type, and watch the capital stack and indicative terms rebuild.
Illustrative structure only — not a quote, offer or advice. Assumes 75% LTV; bridging on a 12-month term at 0.85%/mo + 2% arrangement fee; development day-one at 60% LTV on land (land taken as ~30% of GDV). Your actual structure will differ — run real numbers in our calculators or speak to an adviser.
Key facts
- What it funds: ground-up development on land with planning permission — houses or flats — and substantial conversions, such as an office block becoming residential.
- Day-one advance: typically around 60–65% of the land or site value, with the balance of the purchase coming from your equity.
- Build costs: typically funded in full, drawn in arrears in tranches as each stage of work is evidenced.
- Facility caps: total borrowing is capped by loan-to-GDV (against the projected end value) and loan-to-cost — not by a fixed maximum.
- Profit test: lenders commonly look for a project profit of around 20% of cost.
- Indicative pricing: interest typically from around 0.8% to 1.2% per month, priced to the project's risk. Rates move with the market — we quote against your actual case.
- Term and repayment: around 12 months for a small scheme, two to three years for larger phased sites; the loan is repaid on exit — sale or refinance.
- Regulation: most development finance is not regulated by the Financial Conduct Authority.
How development finance works
Most schemes start with land. A common journey is to buy a site — often on a land bridging loan — and hold it while planning consent is obtained; once planning is in place, the development facility funds the build. Houses, flats and office-to-residential conversions all fit, and it is the step up from refurbishment finance: a different product for projects where something is being built rather than improved.
The structure is consistent across lenders. A day-one advance is made against the land — typically around 60–65% of its value — and the build costs are then funded in arrears: you complete a stage of work, the lender's monitoring surveyor confirms it, and that tranche is released. Most borrowers draw every two or three months; monthly drawdowns can be arranged where cash flow is tight.
How much you can borrow
There is no fixed maximum — borrowing is capped by the projected gross development value (GDV) and the loan-to-cost ratio, so larger, more profitable schemes support larger facilities. The same caps screen out weak schemes. Imagine buying a plot with planning at £500,000, with build costs of £800,000 and a finished value of £1.5 million: on those numbers the margin is thin once finance and selling costs are added, and saleability at the end deserves a hard look. A profit of around 20% of cost is the working benchmark, though it depends on the product and the location.
Working backwards from those caps gives the day-one loan — more often than not around 60–65% of the land value. On a very large build, where the land is cheap relative to the build costs, lenders may restrict the day-one advance further, because most of the facility is committed to the build itself.
Staged drawdown, step by step
Every development facility follows the same staged shape:
- Day one — the land advance. The lender advances typically around 60–65% of the land or site value; your equity completes the purchase.
- Stage works. You build in stages — groundworks, frame, watertight shell, fit-out — funding each stage as it happens.
- Monitored release. After each stage, the monitoring surveyor confirms the work and the lender releases that tranche of build costs in arrears — typically every two to three months, or monthly where cash flow needs it.
- Interest rolls up. There are usually no monthly payments; interest is added to the facility and settled at the end.
- Exit. The finished scheme is sold or refinanced and the facility is repaid — on phased sites, in stages as units sell.
Senior, stretch senior and mezzanine
"Development finance" usually means the senior facility — the first-charge loan described above. Two further layers exist for schemes that need more leverage, and the percentages quoted for each are measured on different bases, which is worth pinning down: a combined loan-to-GDV figure includes the senior debt beneath it; a senior-only figure does not.
| Facility | Charge | Typical leverage | Where it fits |
|---|---|---|---|
| Senior development finance | First charge | Day-one advance of around 60–65% of land value plus build costs typically funded in full, in arrears; the total facility is commonly modelled at around 65% of GDV | The core facility for most schemes |
| Stretch senior | First charge (a single facility) | Lends further up the stack than standard senior debt, at a blended rate | More leverage without layering a second lender |
| Mezzanine finance | Second charge, behind the senior | Takes combined senior-plus-mezzanine borrowing to around 70–75% of GDV, depending on the lender, the scheme and your credit profile | Topping up a scheme partway through, or stretching day-one equity |
So when our mezzanine finance page quotes around 70–75% of GDV, that is the combined senior-plus-mezzanine total — not what a senior lender advances alone. Beyond those levels, the decision rests on the profit margin left in the project.
A worked example
The figures below use the example assumptions from our development finance (GDV) calculator — configurable illustrations, not market rates or an offer.
- The scheme: land at £400,000, build costs of £600,000, professional fees of £60,000, a 7.5% build contingency (£45,000), finance costs of £90,000 and selling costs at 2% of GDV (£30,000) — a total project cost of £1,225,000 against a projected GDV of £1,500,000.
- The margin: projected profit of £275,000 — roughly 22% of cost, or about 18% of GDV — above the around-20% profit-on-cost level lenders commonly look for.
- The facility: at a 65% loan-to-GDV assumption the facility is capped at £975,000; a 90% loan-to-cost assumption would allow £1,102,500, so the GDV cap binds and the maximum facility is about £975,000.
- The structure: a day-one land advance of £240,000–£260,000 (60–65% of the site) plus the £600,000 of build costs drawn in arrears sits inside that cap, with the treatment of fees and rolled-up interest depending on the lender's own model.
Change any input — land price, build cost, GDV — and the caps move with it. Run your own scheme through the calculator to see borrowing capacity, profit on cost and profit on GDV side by side.
What development finance costs
Interest typically starts from around 0.8% to 1.2% per month, and risk decides where in that band a project lands. A scheme squeezing its margin — say 15% to 20% total profit after build and finance costs — or a borrower with credit issues will price towards the top; an experienced developer with a strong margin and their own build capability prices towards the bottom. Rates move with the market and the figures here are indicative, not an offer — we quote against your actual case.
Beyond interest, expect valuation and monitoring fees, legal fees and a lender arrangement fee. Across a 12-month build those costs look significant on paper as a percentage, but many are legitimate project costs that may be offset against tax — take your accountant's advice on your own position.
Who can get development finance
Most developers can qualify, subject to underwriting. Lenders weigh the project ahead of the person: projected profitability, a realistic costed schedule of works and a credible exit. Track record then sets the ceiling — a first scheme is sized conservatively, and lenders advance more, on bigger projects, as you complete and exit well. On larger sites they often require an established building firm or an experienced project manager on board. If this is your first project, see development finance for first-time developers.
Credit history is a factor, but a lesser one than on a standard mortgage. Bad credit narrows the lender pool and raises pricing rather than ruling finance out — and it sharpens the exit conversation: if the plan is to refinance rather than sell, the onward lender's criteria matter from day one, and that is a discussion to have honestly at the start.
The process
- Feasibility first. We appraise the whole deal — land cost, build costs, finance costs and end value — before you commit. Most of our clients won't approach a seller until they understand the profit.
- Costing. Development cases carry far more numbers than bridging: build costs, timescales, contractors and sub-contractors, and fittings down to kitchens and bathrooms ordered in bulk. The costing needs to be specific.
- Lender match. We package the case and present it to the lenders whose appetite fits the scheme, across 135+ lenders.
- Valuation, legals and monitoring. The lender values the site and scheme, legal work runs in parallel and a monitoring surveyor is appointed for the drawdowns.
- Drawdown to exit. The day-one advance completes the purchase, tranches fund the build, and the facility is repaid on sale or refinance.
For how this works in practice, see our case studies — including a development exit that took the pressure off and maximised return and a land purchase structured for a first scheme.
Frequently asked questions
What is property development finance and how does it work?
Development finance is short-term lending that funds the building of property — ground-up schemes on land with planning permission, and substantial conversions such as offices to residential. The lender advances part of the site cost on day one, funds the build in arrears in stages, and is repaid when the scheme is sold or refinanced.
How much can I borrow with development finance?
There is no fixed maximum — borrowing is capped by the projected gross development value (GDV) and the loan-to-cost ratio. Lenders also want to see a healthy profit margin — around 20% of cost is a common benchmark — before they are comfortable with a scheme.
Can I get 100% development finance?
Build costs are typically funded in full and drawn in arrears. The day-one land advance is usually around 60–65%, so reaching 100% overall normally means the lender taking additional security over equity in other assets you hold — a cross-charge — subject to underwriting.
Who is eligible for development finance?
Most developers can qualify, subject to underwriting. The project comes first: profitability, a realistic costed plan and a credible exit. Track record then sets how much a lender will advance — first-time developers start smaller and build up.
How much does development finance cost?
Interest is typically from around 0.8% to 1.2% per month, priced to risk: the project's profitability, your experience and your credit profile all move the rate. Valuation, monitoring, legal and arrangement fees apply on top. Rates move with the market, so we quote against your actual case.
When do I repay a development finance loan?
On exit. The term is agreed up front — around 12 months for a small scheme, two to three years for larger phased sites — and the facility is repaid from the sale of the finished units or a refinance onto longer-term lending.
What are the pros and cons of development finance?
The advantage is leverage: with build costs typically funded in full and a day-one advance against the land, you can run a project with far less cash than buying outright. The cost of borrowing reduces profit, and fees across a long build add up — though many are legitimate project costs your accountant may be able to offset, with advice.
How do I apply for development finance?
Expect more detail than a bridging application: full build costs, timescales, contractor arrangements and a specific schedule of works, down to fixtures bought in bulk. We package the case and present it to the lenders best placed to offer terms.
Can I get development finance with bad credit?
Often, because the project carries more weight than your credit file — but bad credit narrows the lender pool and raises pricing, and it makes the exit more important: if the plan is to refinance rather than sell, the onward lender's criteria need testing from day one.
Listen to the episode
Scott West discusses development finance in more depth on the Propertyze podcast.
Talk to an adviser
Tell us about the site, the planning position and your numbers, and we'll set out how a lender will see the scheme. From our office in the City of London we arrange development finance across London and the wider UK. Call 020 7126 8574 or request a call back — we aim to reply within one working day.
Your property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it. Most development finance is not regulated by the Financial Conduct Authority.
To put numbers to your own scheme, use our development finance (GDV) calculator.
Development finance is not regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
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