What goes into a development appraisal?
- Gross development value (GDV): what the finished scheme will be worth, with comparable evidence.
- Land or site cost and acquisition costs, including stamp duty.
- Build costs: ideally a contractor's quote or quantity surveyor's cost plan.
- Professional fees: architects, engineers, project manager, warranty provider.
- Contingency: commonly 5% to 10% of build costs.
- Finance costs: interest, arrangement and exit fees.
- Sales costs and profit.
Our development finance guide explains each term.
A simple appraisal example (illustrative)
| Item | Amount |
|---|---|
| GDV (four houses) | £2,000,000 |
| Land and acquisition costs | £550,000 |
| Build costs | £800,000 |
| Contingency (7.5%) | £60,000 |
| Professional fees | £90,000 |
| Finance and sales costs | £170,000 |
| Total costs | £1,670,000 |
| Profit | £330,000 (16.5% of GDV) |
These figures are for illustration only. Real appraisals include more detail, such as build programme and sales timetable.
How do lenders test GDV?
The lender's valuer, usually a RICS surveyor, will form their own view of GDV. They use recent sales of comparable new-build or refurbished units nearby. Optimistic GDVs are quickly reduced. Use realistic evidence, and include agents' letters if you have them.
For build-to-rent or mixed-use schemes, valuers may also assess an investment value based on rent and yields. If you plan to keep some units, show both sale and rental evidence. A professional red book valuation is usually required, and it is commissioned by the lender, so you will see the result once it is reported. Where the lender's GDV comes in lower than yours, your borrowing usually reduces, and you may need extra equity or mezzanine funding to close the gap.
What leverage will lenders offer?
Senior development lenders commonly lend up to around 60% to 70% of GDV, and up to a high percentage of total costs. Mezzanine or equity can reduce the cash you put in, at higher cost. Lenders release build funds in stages after a monitoring surveyor confirms progress.
What profit margin do lenders want?
Many lenders look for a developer's profit of around 15% to 20% of GDV, or more on riskier schemes. This margin is their buffer if costs rise or prices fall. If your profit is thin, lenders may cut leverage or ask for more equity.
Why your team matters as much as the numbers
Lenders back people. They will look at your track record, your contractor's experience and financial strength, and your professional team. First-time developers can get funding, especially on smaller schemes, if they appoint an experienced contractor and project manager. Expect personal guarantees in most cases.
Common appraisal mistakes
- Using asking prices rather than achieved sales for GDV.
- Omitting VAT, utility connections or Section 106 costs.
- Underestimating the build programme and finance period.
- No contingency, or one too small for the scheme.
- Ignoring sales agents' and legal fees on disposal.
Lenders' valuers and monitoring surveyors will spot these. Fixing them upfront builds credibility.
How should I present my appraisal?
Lenders review many applications, so a clear, consistent pack helps. Include a one-page summary of the scheme, the appraisal spreadsheet, build cost plan, planning documents, site plans and drawings, your experience CV, and the professional team. Support GDV with comparable evidence and agents' opinions. Explain any assumptions, such as sales rates or rental values for build-to-rent.
Consistency matters. If your cost plan, appraisal and programme do not match, lenders will ask questions and decisions slow down. A broker can review your pack before it goes to lenders and help position it for the right funders, from high street banks to specialist development lenders.
Planning, warranties and building safety
- Planning: most lenders want full planning permission and discharged pre-start conditions.
- Warranty: a structural warranty is usually needed for new homes, so buyers can get mortgages.
- Building safety: higher-risk buildings face Building Safety Regulator approval, which can add time.
- Other costs: Section 106 and Community Infrastructure Levy must be in the appraisal.
How strong is your exit?
Lenders want to know how they will be repaid: sales, refinance onto a buy-to-let or commercial mortgage, or a development exit loan. Show local sales evidence and a realistic sales timetable.
Development finance is generally not regulated by the FCA. Costs and timelines can overrun, and the site is security for the loan. OMB can help structure your appraisal before it reaches lenders.
Development financeFunding for ground-up builds, conversions and heavy refurbishment, released in stages as work progresses.
Explore development financeFrequently asked questions
What is LTGDV in development finance?
Loan to gross development value is the total loan as a percentage of the finished scheme's value. Many senior lenders cap it at around 60% to 70%. It works alongside loan to cost, which measures the loan against total project costs.
How much contingency should I include?
Most lenders expect 5% to 10% of build costs, with more for refurbishments, conversions or complex sites where unknowns are greater. A realistic contingency makes your appraisal more credible. Lenders may challenge a contingency that looks too low for the scheme. Unused contingency simply increases your profit at the end of the project.
Can a first-time developer get development finance?
Yes, particularly for smaller schemes. Lenders will look for an experienced contractor, project manager and professional team, and may offer lower leverage. A detailed appraisal and cost plan help. Expect lenders to ask for personal guarantees and to look closely at your contractor's track record.
Do I need planning permission before applying?
You can approach lenders early, but most will only release development funding once full planning is granted. Land can sometimes be bought with bridging finance while planning is pending. Make sure any pre-commencement conditions are discharged before you need the first drawdown.
What is a monitoring surveyor?
An independent surveyor appointed by the lender to check build progress and costs. Funds are released in stages after the monitoring surveyor confirms work completed. You usually pay their fees. They also review the appraisal and cost plan at the start, and flag risks to the lender during the build.
Is development finance regulated?
Generally no. Development finance for building or converting property to sell or let is unregulated. It is commonly secured on the site with personal guarantees from the developer. That means fewer consumer protections. Costs and timelines can overrun, so contingency and a realistic exit matter.
Important: This guide is general information, not personal advice. Rules, rates and lender criteria change; speak to an adviser about your circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.