| Typical senior LTGDV | Around 60–70% |
|---|---|
| Typical loan to cost | Up to 80–90% including stretch products |
| Day-one land advance | Often 50–65% of purchase price |
| Term | Usually 12–24 months |
| Interest | Usually rolled up or retained, charged on funds drawn |
| Regulation | Usually unregulated business lending |
What is development finance?
Development finance funds ground-up builds, conversions and heavy refurbishments. It typically covers part of the land purchase and most of the build costs. It is repaid from selling the finished units or refinancing onto a term loan.
It differs from a bridging loan because money is released in stages as work progresses. Lenders lend against what the scheme will be worth, not just what it is worth today.
What projects can development finance fund?
Development finance can fund most residential and many commercial schemes, from a single house to large blocks. Lenders will look at the scale, the type of work and the end product.
- Ground-up new builds, from one unit to large schemes
- Conversions, such as office or barn to residential
- Heavy refurbishment involving structural work
- Extensions and new units added to existing buildings
- Mixed-use and semi-commercial schemes
Lighter refurbishment is often better suited to a refurbishment bridging loan, which is usually quicker to arrange.
How much can you borrow for a development?
Lenders apply two tests and use the lower result. Loan to gross development value (LTGDV) compares the total facility with the expected end value. Loan to cost (LTC) compares it with total project costs. Senior lenders often cap LTGDV at around 60% to 70%.
Here is an illustrative scheme of six flats:
| Item | Amount |
|---|---|
| Gross development value (GDV) | £3,000,000 |
| Land purchase | £900,000 |
| Build costs | £1,200,000 |
| Professional fees, CIL and Section 106 | £130,000 |
| Contingency (5% of build) | £60,000 |
| Total costs before finance | £2,290,000 |
| Ceiling at 65% LTGDV | £1,950,000 |
| Ceiling at 85% LTC | £1,946,500 |
| Profit before finance costs | £710,000 (about 24% of GDV) |
The facility here would be capped near £1.95m, and that figure usually includes rolled-up interest and fees. The developer funds the rest from equity. Many senior lenders look for a profit margin of around 20% on GDV.
How are development funds released?
Funds are released in stages. The lender advances part of the land price on day one. Build money is then released monthly, in arrears, after a monitoring surveyor confirms the work done.
Because drawdowns follow completed work, you need cash to pay contractors before each release. Delays in valuation or inspection can squeeze cash flow, so plan working capital carefully.
How is interest charged on development finance?
Interest is normally rolled up or retained, so there are no monthly payments. It is charged only on money drawn, but compounds until repayment.
- Arrangement fee, often 1% to 2% of the facility
- Exit fee with some lenders, charged on the loan or GDV
- Monitoring surveyor, valuation and legal fees
- Broker fee, which OMB will set out in writing
Compare total cost of funds over the expected term, not the headline rate.
What do development lenders look for?
- Your experience, or that of your contractor and professional team
- Full planning permission, building control and warranties
- A detailed cost plan and fixed-price or well-specified build contract
- A realistic appraisal with comparable sales evidence
- Enough equity and a contingency, often 5% to 10%
- Personal guarantees from directors, in most cases
The lender will also instruct its own valuer to report on the site value today and the GDV. If the valuer's GDV is lower than your appraisal, the facility shrinks. Strong comparable evidence and realistic sales assumptions reduce that risk.
First-time developers can get funding, but usually at lower leverage and with a strong professional team.
What are the exit routes for development finance?
The usual exit is selling the completed units. Some developers refinance onto a buy-to-let or multi-unit term loan and keep the stock. A development exit loan can buy time to sell at full value after practical completion.
Lenders will test the exit before lending. Agree it early. If you plan to sell, they may look at local sales rates and agents' pricing advice. If you plan to refinance, they will check the finished units meet the term lender's criteria, such as rental cover, unit size and building warranties.
What are the risks of development finance?
Development lending is expensive and short term. Build costs can overrun, programmes slip and sale prices fall. Rolled-up interest grows each month the scheme runs late, eroding profit.
Most development finance is not regulated by the FCA. Loans are secured on the site, and often supported by personal guarantees. If the loan is not repaid, the lender can enforce its security. Take legal and tax advice before committing.
Sources
Checked October 2026. Rules and tax treatment can change, so confirm the current position before acting.
- GOV.UK: Community Infrastructure Levy guidance
- GOV.UK: Stamp Duty Land Tax residential property rates
Frequently asked questions
What is LTGDV?
Loan to gross development value is the total loan as a percentage of the finished scheme's expected value. Senior development lenders often cap it at around 60% to 70%. It is one of two limits lenders apply, alongside loan to cost.
Can I get 100% development finance?
Full funding of costs is rare. It is sometimes possible with a joint venture partner or equity funder, or where you bring extra security. Most schemes need developer equity, typically 10% to 35% of total costs. Lenders want you to have money at risk in the scheme.
Can first-time developers get development finance?
Yes, some lenders fund first schemes, usually smaller ones. Expect lower leverage and closer scrutiny of your contractor, architect and project manager. Relevant experience in construction or refurbishment helps. Lenders may also ask for a larger contingency, a fixed-price build contract and a project manager with a track record.
What does a monitoring surveyor do?
A monitoring surveyor reviews your costs, programme and contracts before the loan starts. During the build they inspect the site and confirm the value of work done before each drawdown. You normally pay their fees. Their reports also flag cost overruns or programme delays early.
Is development finance regulated?
Usually not. Most development finance is business lending to companies or experienced investors and is not regulated by the FCA. It may be regulated if the security includes a home you or a family member live in. Unregulated loans do not carry the same consumer protections.
What is mezzanine finance?
Mezzanine is a second loan that sits behind the senior lender and reduces the equity you need. It costs more because the lender takes more risk. Some lenders offer stretched senior loans that combine both into one facility. Total borrowing costs rise, so test the scheme's profit carefully.
What is a development exit loan?
A development exit loan refinances a development facility once the build is complete or nearly complete. It is usually cheaper than development finance and gives you time to sell or let units without rushing. It is a form of bridging finance.
How long does development finance take to arrange?
Often several weeks. Time depends on valuation, the monitoring surveyor's report, legal work and how complete your appraisal is. Having planning, costings and contracts ready speeds things up. Weeks is typical for a well-prepared scheme. Missing information, such as an incomplete cost plan or outstanding planning conditions, is the most common cause of delay.
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.