Development Finance

Development finance funds ground-up building projects — typically around 60–65% of the land cost on day one, with build costs funded in arrears as the scheme progresses, repaid on sale or refinance.

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.

Interactive · illustrative

Structure the facility

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Gross development value

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£750k£18m

Total facility£5,175,000

Day-one land advance£1,242,000

Indicative LTGDV75%

Capital stack

Your equity£1,725,000

Mezzanine£690,000

Senior debt£4,485,000

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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Full transcript — “Development Finance”

Recorded March 2023. A conversation with Scott West of Propertyze, transcribed in full. 14 minutes · approximately 2,794 words.

Read the transcript

Hello and welcome back to the Bridging Finance podcast and we have Scott West here from Propertyze to talk all about development finance. Thank you for joining us, Scott. How's it all going? Yes, it's going well, thank you. Development finance is a bit of a meaty topic today, so we've probably got a bit more to talk about too. Yeah, definitely. Let's get straight into it then. So first of all then, what is property development finance and how does it work? Development finance is a step up from the refund finance. For most people it will be ground up development. You've found land, you've got planning permission and now you want to build on it. That's flats, houses, anything from the ground up development finance. Some

conversions might fall into this. So if you've got a big office block that needs changing into residential but planning, that would probably fall into this as well. But to keep things simple today, I'll be referring to ground up builds generically. So there are different types. Obviously you've got the ground up is the primary one that we tend to deal with anyway. So people tend to buy land fairly cheap and they'll hold it for a period of time while they kind of obtain the development planning. Once that's in place, that's where we come in with the development finance. So the lender will give you 65% as a general rule on day one and then they will give you 100% of the build costs during the build. And those build costs are paid in arrears much like

the refurbishment bridging land we've discussed before. Right, okay then. And moving on then, again you might have touched on it there but people would like to know how much could be borrowed with development finance. Essentially as much as you like is the short answer. The bigger the deal, the more you're able to borrow, the limiting factors will always be the gross developed value and the loan to cost. Crude examples, but if you were to buy a plot of land today with planning commission at £500,000 and you're going to build some houses on it, say four houses, and your build costs are going to be 800 grand but your final value when you still have four houses built and finished would be worth 1.5

million, then the numbers don't stack. You've got 500 grand worth of land per million, 800 grand of build costs. Your profit margin is relatively small. So you need to look at the overall saleability at the end even if the intention is maybe to refinance those properties. We need to look at the profit margin. So a lender will look at your profit margin to 20% is a good number to bear in mind. It depends on the project and its location. But 100% of the build costs will always be factored in and then working backwards you can determine your day one loan. More often than not, it's 65%. But if you have an exceptionally large build, if you're building, if you put the land really cheap and it's got a lot of

development potential, you put it on there, maybe a mini estate, you put it on there 30, 40, 50 houses, the lender might restrict your day one loan just because the bulk of the money is going to be in your build costs. Okay, so that all makes sense there. And this is an interesting question. Scott, can I get 100% development finance? You can. As long as you've got other assets somewhere we can cross charge. So the build cost themselves will always be 100% financed. They will always be paid in arrears. And again, you can do it in as many or as little charge that you like. Most people tend to kind of think every two, three months. But if your cash flow is quite tight, it can be made monthly on the on the reef website. Sorry, on the development finance side. The acquisition

itself, if the lens is going to give you 50 or 65%, whatever the shortfall might be, if you have equity in other securities in your portfolio, even if they're in different legal entities, if it's a personal name or different limits of company, we can cross charge that equity across and give you effectively a 100% finance on your development. Okay, there we go. And who is eligible for development finance? So I suppose what sort of criteria needs to be met? Essentially, everybody is eligible for development finance, much like the bridging finance, your credit isn't a huge part of the consideration. So it comes down really to what is the project? How profitable is it going to be? And what is your exit strategy? Everybody is eligible, in essence, but the

factors will come down to how big the project is. If you've never done any developments before, you've got no building experience, and you've never even done a refurbishment of a home before, the lens is going to be very hesitant to lend you a significant amount of money. But if you've got, you need to start small, basically, start with a couple of small projects, a couple of houses, a couple of refurbs, build up a bit of a portfolio, attract record of completing projects on time, getting them to a good standard and then exiting those projects effectively, whether it's sale or whether it's refinance. Unless you develop a track record, lenders will lend you more and more money on bigger and bigger projects. Now some projects, even if

you've got significant experience, will have criteria from the lender that maybe you need to have a specific level of building firm, a very sizable firm in there, or a project manager that has enough experience to fund the project on your behalf. We're talking then, you're doing big development with maybe 30, 40 on-board houses, those will kind of have additional criteria. Wow, okay. So that all makes sense there. And then how much does development, finance costs, and what sort of costs are involved? It's not too dissimilar from the bridging finance as a whole. We're going to be starting maybe from the 0.8 to maybe 1.2% per month, depending on projects' overall profitability or projected profitability. If you've got a project

that's going to be squeezing it quite tightly, you know, we're looking at maybe 15 to 20% profit total at the end, after considering the build cost and everything else, and then the finance costs, you might find a lender puts their rank up a little bit, closer to the 1.2. Or if you've got credit issues, again, closer to the 1.2. If you've got a project with fantastic profitability, you've got your own building firm, you've done this before, you're very experienced, the lender's going to be much more comfortable with the risk, and you're going to get closer to that 0.8%. Essentially, risk is the deciding factor on how much this is going to cost. Okay, so bear that in mind, I suppose. And another question we have here

that people would like to know, asks, when do I need to repay a development finance loan? So the repayment's on the exit. So the term will be decided up front, depending on the project size. If it's a small one, you know, some people carve off the bottom of their garden, build a home at the bottom of their garden, sell it separately. A 12 month term is plenty. So the lender will give you the time to build it, and then a reasonable period to either refund or de-sell. And then obviously the repayment of their loan comes from that sale, or the new lender coming into mortgage if you're buying it, keeping it as an investment property, for example. With the larger ones, if you're doing 30, 40, I've got one going on

potentially with the 250 houses on a single site, the lender will give you two, three years to do that. And they will probably stay into that as well into different tranches. So phase one of the build, phase two of the build will be the first 100 houses, second 100 houses, etc. And each of those again will be paid on the exit. So at the end of that fixed term, either the sale of those properties as they go through, will be released from the security and repaid. Or if you refinance, again, the new lender comes in and just replaces the development finance as a whole batch. Right, okay. And I suppose, Scott, just to sum up what you've said so far on the episode, what are the pros and cons of development finance?

The cons, I'll start with the cons, because I think they're not really cons to be honest with you. The cons are you're borrowing someone else's money, and then there's a cost for that. So it does reduce your profitability. You know, everybody looks at, we've all done it, walk on your dog, walk around, that's a fixed wrapper. But when you consider the other mitigating factors, the cost of doing that, the profitability on those projects become, are decreased significantly from what people think they are. And that's the best one thing of the development finance. When you build up 12 months worth of costs, and you throw in some legal fees or evaluation fee, the costs on paper look fairly significant as a percentage. But that said, I don't I've

still view that as a pro because you're on an A, you can you can offset those things against your tax bill largely with your accountants and obviously advice. But you were able to do a project that maybe you couldn't fund yourself. So the borrowing someone else's money is a cost, but it's a cost that allows you to do more than you could have done without it. So it really becomes a pro. And the pro being that you're able to essentially run a project with very little cash input from yourself, but still make a profit margin based on the gross value for that. So in the examples, you know, if you get 100% of the bill costs, and you get 60, 65% off the day one loan, at the end of this, you've only put 35% into your purchase of land. But you

achieve a 20% profit margin on the total end value at the end, it's, it's very profitable. If you look at the actual return on your cash investment. So that's the pro I think you're able to cash flow a project that's just usually outside your reach. Okay, yeah, and that's really great way of looking at it as well. So moving on then, and we've got a couple of questions left. How do you get or apply for development finance? What is the process here? The process in essence is very similar to the bridging, but there are far more numbers to crunch before we get there. So it's a much larger understanding to build costs to the time scale, the building firms coming in, are you going to have subcontractors in for the bits, you know, most

likely you're going to have plasterers in carpenters in electricians and maybe subcontractor down from the program folks, you need to understand all the costs, the fittings you need to get depending on the size of the development you're doing. I had a client quite recently have to go out and get a quote for 37 ovens and 30 some bathrooms and 30 seven kitchens, which actually means they're saving, buying a bulk almost they're making a saving, but you have to factor in every element of that build, the taps, the doors, everything comes together. And that bill quite needs to be very, very specific. Versus when you refurb your home, and you say to the lender, I'm going to borrow 10 grand that I'm gonna do my

kitchen, my bathroom, I'm gonna go home base. It's a bit more in depth with the development and understanding exactly what's going in the phase, the time scale free to those steps. So although it's a similar process from the client's perspective, as the broker side, there's a lot more for us to package and presenting that to the lender in the right way is a key driver for them offering terms. Okay, so I suppose like we've actually said on other episodes, Scott, preparation is key, isn't it? Preparation is key and more often than not, I mean, probably 20% of the development loans we look at actually go through to the client making an offer. And that's because we do our due diligence first, we look at the entire profitability of the deal, the

client obviously goes away gets their building costs. But we look at the finance costs and we put all together and we look at the total profitability in a case and the time scale for that. That's what allows a client to go away and make a viable offer on that land until they understand entirely where they're going to end up. Most of the clients we deal with won't even engage with the seller until they completely understand their profit they're going to make. Okay, and then we do just have a question here that asks, what if I have bad credits? Well, I suppose, how does this affect somebody getting development finance? Similar to the bridging, it's a factor, but it's a much lesser factor, because the risk is partly

removed by the fact that the lender is going to provide you all of the build costs. And by doing that, they're ensuring there is no cash flow issues that restrict the build from completing, which is a really important part. The reason you can't fund half the building only borrow half the build is because they need to ensure the build absolutely completes, which is why they fund all of it. It ensures at the end of the project, the building is done and completed. And then there's whatever reason we can't exit, that's always so you can always sell something that's finished, even if you can't refinance it. So that's a really important part to consider. So if you've got bad credit, we need to have a very honest

discussion about the feasibility of an exit. Do you plan to keep any of these things? If so, these are your options. If you know if your credit's bad, we can't exit, you can't keep them. We can't find you a lender that's going to be cost effective for you to do that. We can have that conversation from the development side. It is a factor that may price slightly higher if you've got really bad credit, but it won't stop you getting the finance. Okay, well that's good news and hopefully sounds reassuring to anybody listening to this. Scott, that's been really thorough. Thank you for that. Is there anything else you'd like to add? Any final thoughts? I think it's just the first few you find you probably won't want to go ahead with. But I

was saying to people, if you find something you like to look off, send it to me as a case study. Send this over and say, I found something I like to look off. What would it look like in theory? And let's have a discussion because once we've done that, and the clients get an understanding of the costs, it might be that project slightly too big, but it gives them a really clear understanding of what the process looks like, what the cost looks like, what the exit looks like. Once they've got that as a case study, they can replicate that and find other things that maybe do fit them better. Or, you know, find a project that's slightly better suited to their current costings. Exposure, really. Start looking at the development

projects, start finding something near you, have a look at them as they're going through. And if you find things you find interesting, send it to your broker, send it to us. We'll quote them up and illustrate how the whole thing looks. And that gives people a much clearer image, I think, of feasibility. Because most people think it's an inaccessible product to them, and it's not. Okay, well, a great note to end on there. So thank you for that once again. And I'm sure we'll speak to you again on the podcast very soon. Absolutely. I look forward to it.

This is a transcript of a spoken conversation recorded in March 2023, published as recorded and lightly corrected for names and technical terms only. It is general information about how this type of lending works, not advice on your circumstances. This recording is more than eighteen months old. Any rates, fees, loan-to-values or criteria mentioned reflect the market as it stood when this was recorded and are not current pricing and not an offer of finance — for today’s figures, speak to an adviser.

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