| Typical loan size | £250,000 to £50m+ |
|---|---|
| Loan to GDV | Usually up to 60–70% of the end value |
| Loan to cost | Often up to 80–90% of total costs |
| Build costs | Commonly up to 100%, released in arrears |
| Term | Typically 12 to 24 months |
| Interest | Usually rolled up and repaid on exit |
| FCA regulated? | No, development finance is generally unregulated |
Who is this for?
- Developers building new homes or apartment schemes
- Investors converting offices or barns into residential units
- Owners carrying out heavy, structural refurbishments
- First-time developers with a strong professional team
- Developers needing to release capital after practical completion
What is development finance?
Development finance is specialist short-term lending for building or substantially converting property. It usually covers part of the land or property purchase and most or all of the build costs. The loan is repaid from the sale of the finished units or by refinancing.
Unlike a mortgage, the lender is backing a project rather than an existing income stream. It assesses the scheme, the costs, the end values and your team. Our guide development finance explained covers the basics in more depth.
Development finance can fund:
- Ground-up new-build houses and apartments
- Conversions, including office-to-residential and barn conversions
- Heavy refurbishment and extensions
- Mixed-use and some commercial schemes
It is designed for professional property projects. If you are building your own home, a self-build mortgage is usually more suitable.
What are LTGDV and LTC?
Loan to gross development value (LTGDV) compares the total loan with the expected value of the finished scheme. Loan to cost (LTC) compares the loan with the total project costs. Lenders usually apply both tests, and the lower result sets your maximum.
- LTGDV: senior lenders commonly cap at around 60–70% of GDV.
- LTC: senior lenders often fund up to 80–90% of total costs, including land, build, fees and interest.
For example, on a scheme with a GDV of £5m and total costs of £3.6m, a 65% LTGDV limit gives £3.25m, while a 90% LTC limit gives £3.24m. Your equity covers the gap. The figures are illustrative only.
Senior lenders typically fund part of the land, often around 50–65% of its value or purchase price, and most or all of the build costs. Your appraisal should include professional fees, finance costs, contingency and sales costs.
Lenders may also look at profit on cost, often wanting to see a healthy margin, commonly around 15–20% or more, so the scheme can absorb some cost rises or price falls.
How do staged drawdowns work?
The land or property element is usually released on day one. Build funds are then released in stages, normally monthly, after the work done has been inspected and certified. Drawdowns are paid in arrears, so you or your contractor fund each stage first.
Interest is generally charged only on funds drawn, which keeps costs down early in the project. You need enough cash flow and contingency, often around 5–10% of build costs, to manage between drawdowns and any overruns.
Lenders also check that the remaining facility is enough to finish the build. If costs rise, they may ask you to inject more funds before releasing further drawdowns.
Some lenders will also fund costs already spent, such as planning or site preparation, if properly evidenced.
What does a monitoring surveyor do?
A monitoring surveyor, often a quantity surveyor, acts for the lender throughout the build. Before the loan, they review your costs, programme, contracts and professional team. During the build, they visit site and certify each drawdown.
Their fees are usually paid by the borrower. A well-prepared cost plan and programme make their job, and your drawdowns, much smoother. Delays in certification can affect your cash flow, so good communication with them matters.
They will usually need:
- A cost plan or build contract
- A build programme and cash flow
- Planning approvals and building control arrangements
- Details of the contractor, architect and warranty provider
If you change contractor, specification or programme during the build, the monitoring surveyor and lender usually need to approve the change first.
What is mezzanine finance?
Mezzanine finance is a second loan that sits behind the senior development loan. It reduces the equity you need to put in, sometimes taking total borrowing above 90% of costs.
Mezzanine is significantly more expensive than senior debt because the lender takes more risk. It needs the senior lender's agreement, usually through an intercreditor deed. Higher leverage also magnifies losses if costs rise or values fall. Equity joint ventures are an alternative where a funder shares in the profit instead.
Some lenders offer stretched senior facilities instead, giving higher leverage in a single loan. These avoid the complexity of two lenders but are typically priced above standard senior debt.
What is a development exit loan?
A development exit loan is a short-term bridge used once a scheme reaches practical completion. It repays the development facility, which is usually more expensive, and gives you time to sell units without pressure.
Exit loans can also release some profit to start your next project. They are typically based on the completed value, so they rely on realistic sales prices. Alternatively, units you plan to keep can be refinanced onto buy-to-let or multi-unit freehold mortgages.
Plan your exit before the build starts. Lenders will look at local sales evidence, likely sales rates and whether buyers can get mortgages on the units, for example small studios or flats in high-rise blocks.
For build-to-rent schemes, the exit is usually a term loan secured on the completed, let units. Lenders will want rental evidence and confidence the units will let quickly.
What do development lenders look for?
Lenders want confidence that the scheme will be built on time, on budget and sold at the values projected.
- Full planning permission, or a clear route to it
- A detailed cost plan, build programme and contingency
- An experienced contractor and professional team
- Comparable evidence supporting the GDV
- Your track record, or a strong team if you are newer
- Structural warranties for new homes, such as NHBC or equivalent
Development carries real risks, including cost inflation, contractor failure, planning issues and falling values. Your property and any personal guarantees may be at risk if the loan is not repaid. These loans are generally not regulated by the FCA.
Planning conditions, Community Infrastructure Levy and Section 106 obligations should all be factored into the appraisal.
How OMB helps
We review your appraisal before it goes to lenders, challenge assumptions on costs and values, and approach senior, mezzanine and equity funders that suit the scheme and your experience. Once funded, we stay involved through drawdowns and help plan the exit or refinance.
Run the numbersLTGDV vs LTC facility, finance costs, equity and profit on cost.
Development finance calculatorHow we arrange it
- Free 15-minute call
- We review the appraisal, costs and planning
- We present the scheme to senior, mezzanine or equity funders
- Valuation, monitoring surveyor review and legals
- First drawdown, staged releases and planned exit
Example cases
Illustrative examples based on the type of case we arrange. Not specific clients; every case is different.
£1.43m development finance at 55% LTGDV for four new houses near Maidstone
£1.95m development finance at 62% LTGDV for an office-to-residential conversion
£660,000 development finance at 60% LTGDV for a first-time developer in Bristol
From the blogDevelopment finance: what lenders look for in your appraisal
Read the articleFrequently asked questions
Can a first-time developer get development finance?
Yes, some lenders back first-time developers, particularly on smaller schemes. You will usually need a strong professional team, an experienced contractor, a realistic appraisal and more equity. Starting with a conversion or refurbishment can help build your track record. Some lenders also cap loan sizes for newer developers.
How much deposit do I need for development finance?
Senior lenders often fund up to 80–90% of total costs, so you typically contribute 10–20% plus any shortfall from the LTGDV limit. Mezzanine finance or a joint venture can reduce your contribution further, but at a higher cost. The exact amount depends on the scheme and the lender.
What is GDV in property development?
GDV stands for gross development value. It is the expected market value of the finished scheme, or the total sale price of all units. A RICS valuer assesses it using comparable evidence. Lenders use it to set the maximum loan through the LTGDV ratio.
Do I need planning permission to get development finance?
Most development lenders require full planning permission before releasing build funds. Some will fund land purchase earlier with a bridging loan while planning is pursued, but that carries more risk. Permitted development schemes can also be funded, subject to the right approvals.
How is interest paid on development finance?
Interest is usually rolled up and repaid when the loan ends, so you do not make monthly payments during the build. It is charged only on funds drawn. Rolled-up interest is included in the total facility, which affects how much is left for build costs.
Who pays for the monitoring surveyor?
The borrower usually pays the monitoring surveyor's fees, including the initial report and each site visit. These costs should be included in your appraisal. The surveyor works for the lender, not for you, although clear communication helps drawdowns run smoothly.
What happens if my build costs overrun?
You will normally need to fund overruns yourself, as lenders rarely increase facilities mid-build. This is why a contingency of around 5–10% is important. Serious overruns can put the project and your security at risk, so early warning to the lender is essential.
What is the difference between LTC and LTV?
LTC, or loan to cost, compares the loan with total project costs. LTV, or loan to value, compares it with the current property value. In development, lenders also use LTGDV, comparing the loan with the finished value. The lowest result usually sets your maximum loan.
Can I get 100% development finance?
True 100% funding is rare. It sometimes happens through a joint venture, where a funder provides all the capital in return for a large share of profit. Combining senior debt with mezzanine can reach high leverage, but you will usually still need some equity.
How long does development finance last?
Terms usually match the build programme plus a sales period, often 12 to 24 months in total. Larger schemes may need longer. Building in time for delays matters, because extensions are not guaranteed and can be costly. Development exit loans can provide extra time to sell once the build completes.
Can development finance fund a conversion?
Yes. Office-to-residential, barn and commercial-to-residential conversions are commonly funded, whether through full planning or permitted development rights. Lighter projects may suit refurbishment bridging instead, which can be simpler and quicker. Lenders will want a building survey, a clear cost plan and evidence of demand for the finished units.
Is development finance regulated?
Development finance for investment or sale is generally not regulated by the FCA, so you have fewer consumer protections. An exception may apply if you are building a home you will live in, in which case a regulated self-build mortgage may be more suitable.
Important: Bridging and development finance are short-term, secured borrowing and can be expensive. You need a clear, realistic exit plan. Loans secured on a home you live in may be FCA-regulated; most others are not. Your property may be repossessed if you do not keep up repayments.