Development finance, structured the way lender credit committees read it

What property development finance funds

Development finance is short-term secured lending, typically 12 to 24 months, that funds the purchase of a site and the construction works on it. The schemes we place fall into four broad types: conversions of existing buildings into flats or HMOs, permitted development schemes such as office-to-residential under Class MA, small ground-up sites of one to four units, and multi-unit new build of five units and upwards. The same facility architecture covers all four; what changes is leverage, pricing and how hard the lender looks at your track record.

The boundary at the lighter end matters. If the works involve no structural change and no planning, that is a refurbishment bridge, not development finance, and it prices and completes faster. Our refurbishment finance page covers that route. Once you are demolishing, extending the envelope, converting between use classes or building from slab, you are in development finance territory and the lender will underwrite the scheme, not just the asset.

The market splits into development banks, specialist development lenders, bridging funds that run development books, and private debt funds at the larger or more highly leveraged end. They do not price or behave alike, and most publish criteria that only loosely resemble what their credit committees actually approve. Knowing the difference is the job of development finance brokers, and it is the desk we run daily.

Anatomy of a development facility: land advance, works in arrears, rolled interest

Every senior development facility has two components. The day-one land advance is released at completion and typically runs at 50 to 65 percent of land value, occasionally higher where planning gain is already crystallised. The works element funds the build, usually 100 percent of construction costs, but strictly in arrears: you pay for the month's works, the lender's monitoring surveyor certifies what has been built, and the lender reimburses against the certificate.

That word "arrears" is the one developers underestimate. You need working capital to carry one to two months of build cost at the peak of the programme, because the certificate always lags the invoice. We size that working-capital gap on every appraisal before terms are issued, not after the first drawdown is short.

Interest is rolled up rather than serviced. The lender compounds it into the loan and collects everything at redemption from sales or refinance. This is why two facilities with the same headline rate can cost materially different amounts: what matters is the rate, the arrangement fee of 1 to 2 percent, any exit fee, and how long the money is actually outstanding, which the drawdown profile determines. A facility drawn slowly costs far less than the headline suggests.

The three sizing constraints, with a worked appraisal

Lenders size a development facility against three constraints at once, and the binding one wins. Loan-to-gross-development-value: senior lenders cap at 60 to 65 percent of GDV. Loan-to-cost: 80 to 85 percent of total project cost including rolled interest. Profit on cost: the appraisal must show at least 17.5 to 20 percent, because that margin is the lender's buffer against sales price slippage and overruns. See our guide to gross development value for how the GDV figure itself is evidenced.

Worked appraisal: a four-unit office-to-residential conversion. GDV £1.6m (four flats at £400,000, supported by comparables). Land at £450,000, build at £620,000, professional fees £55,000, contingency at 10 percent of build £62,000, rolled finance costs estimated at £95,000. Total cost £1,282,000.

Constraint one: 65 percent LTGDV gives a maximum facility of £1,040,000. Constraint two: 85 percent LTC gives £1,090,000. Constraint three: profit of £278,000 after £40,000 of sales costs is 21 percent on cost, which clears the hurdle. The LTGDV cap binds, so the facility is £1,040,000: a day-one land advance of £270,000 (60 percent of land value) with the balance funding the works in arrears. The developer's equity requirement is £242,000, essentially the land deposit plus early fees.

Run your own scheme through our development finance calculator to see which constraint binds, because it changes the negotiating strategy. A scheme bound by LTGDV needs a stronger GDV case; a scheme bound by LTC needs cost engineering or a stretched senior facility.

The appraisal a lender actually reads

A development appraisal has five numbers a credit committee tests before anything else. GDV, which must be supported by sold comparables, not asking prices, and which the valuer will independently re-derive. Build cost, which gets a £-per-square-foot sanity check: as of June 2026 a credit officer expects to see roughly £160 to £220 per square foot for standard new build outside London and £110 to £160 for conversions, and a figure well below that range triggers questions rather than approval. Contingency, where less than 5 percent reads as naive and 10 percent on conversions is the credible norm. Finance costs, fully rolled, at the actual facility rate rather than an optimistic one. And profit, the residual, which must survive all of the above at 17.5 to 20 percent on cost or better.

Having sat on the lending side of this table at Bank of Scotland and Lloyds, our founder's rule is simple: the appraisal that gets approved is the one the credit officer cannot improve. We rebuild every client appraisal to that standard before any lender sees it, because a returned appraisal costs three weeks and some credibility. The mechanics are covered in depth in our guide, development finance explained.

Experience tiers: how lenders price your track record

Development finance lenders underwrite the developer as hard as the scheme. First scheme: ground-up senior debt is largely closed to you, but the heavy refurbishment route is open, a conversion or PD scheme funded as refurbishment bridging at 70 to 75 percent of purchase price plus works, with an experienced contractor doing the heavy lifting on credibility. Step-up schemes: with one or two completions behind you, senior lenders will fund projects roughly twice the size of your last one, and they will check that ratio. Repeat developers: three or more completed schemes opens the full market, top-of-range leverage, finer pricing and revolving relationships where the next site's terms are agreed before the current one redeems.

The practical advice we give landlords moving into development is to sequence deliberately: a heavy refurb, then a small conversion, then ground-up. Each completion is collateral for the next negotiation.

Personal guarantees and cost overrun guarantees

Almost all development lending is written to an SPV, and almost all of it carries a personal guarantee. The market standard is a PG capped at 20 to 25 percent of the facility, so £260,000 on a £1.04m loan, not the full debt. Its purpose, from the lender's chair, is alignment: enough exposure that you stay engaged if the scheme struggles, not enough to be ruinous. PGs are negotiable on cap, on joint-and-several treatment between partners, and occasionally on release triggers at practical completion, and we negotiate all three.

Separately, most lenders require a cost overrun guarantee: an undertaking that if the build costs more than the appraisal, you fund the difference. Unlike the PG it is typically uncapped, which is exactly why the contingency line and a fixed-price build contract matter so much. The cheapest way to de-risk an overrun guarantee is a credible cost plan, not a negotiation.

Drawdowns and monitoring: the monthly rhythm of the loan

Once the facility completes, the loan runs to a monthly rhythm. You submit a drawdown request with the month's invoices and valuations from your contractor. The monitoring surveyor, appointed by the lender at your cost, typically £1,200 to £2,500 per visit, inspects the site, certifies the value of work properly executed, checks the programme against the appraisal and flags variances. The lender funds against the certificate, usually within 5 to 10 working days.

The MS relationship is worth managing well. A monitoring surveyor who trusts the information flow certifies quickly; one who is chasing missing warranties, unsigned variations or an out-of-date programme certifies slowly, and slow certification is how schemes run out of cash mid-build. We brief clients on the MS pack before the first visit, because the first certificate sets the tone for the next twelve.

The exit: sell, refinance, or hold

Every development facility is underwritten against its exit, and there are three. Selling the units repays the loan from completion monies, with the lender releasing its charge unit by unit. Refinancing onto development exit finance at practical completion cuts the cost of carry to 0.55 to 0.95 percent per month and removes the fire-sale pressure of a maturing facility while units sell. Holding the finished scheme as rental stock means refinancing onto term debt, a buy-to-let mortgage on a single unit or an MUFB mortgage where the block stays on one freehold title.

We model the exit before we place the facility, because the exit determines the lender. A scheme destined to be held as a rental block should be placed with a lender whose term arm, or whose known refinance partners, will take the asset at completion. Deciding this at month eighteen is too late.

Development finance rates by facility type, June 2026

Indicative ranges across our panel as of June 2026. Development finance loans price on leverage, scheme type, location and developer track record, so treat these as the realistic band, not a quote.

Ranges are indicative, as of June 2026, and depend on leverage, scheme type, location, build contract and borrower track record at the time of application.

Frequently asked questions