Development Finance
Development Finance
Funding for SME developers, structured around your programme rather than a lender's template.
What it is
Finance built around the build.
Development finance is not a mortgage. A mortgage funds an existing asset against an existing income; development finance funds an asset that does not yet exist against a value it does not yet have.
Money is released in tranches, drawn down against surveyed progress rather than paid out in a single sum at completion. The lender's exposure grows as the building grows, and each release is signed off by a monitoring surveyor who confirms the works have actually been done to specification and to cost.
Pricing is set against the project as much as the borrower. Underwriting looks at the site, the planning, the build costs, the contractor, the programme and the exit — all before your own balance sheet enters the conversation. And the loan is sized on the finished value, not on what you paid for the land.
What we fund
The schemes we place most often.
Ground-up residential
Single dwellings through to small housing schemes on greenfield or brownfield sites with planning in place.
Conversions and change of use
Bringing an existing building into a new use — commonly office to residential under permitted development or full planning.
Heavy refurbishment
Works significant enough to be outside a bridge — structural changes, extensions, reconfiguration for value uplift.
Small multi-unit schemes
Two to twenty units. Terraced infill, small apartment blocks and mews-style developments.
Commercial to residential
Retail, office or light industrial converted to housing, often combined with a bridge to buy the asset in the first place.
The numbers that matter
How lenders read a scheme.
Six figures decide whether a development deal is fundable, and at what price. Get comfortable with them.
- GDV
- Gross Development Value — the open-market value of the finished scheme, assessed by a RICS valuer against comparable sales.
- LTGDV
- Loan to GDV — the total loan facility expressed as a percentage of the finished value. Most senior lenders cap this in the 60% – 70% range.
- LTC
- Loan to Cost — the total loan facility expressed as a percentage of total scheme cost (land, build, fees, contingency). A typical ceiling is 85% – 90%. In practice the LTGDV cap usually binds first — a scheme at 90% LTC will often be limited to 65% – 70% LTGDV, and the lower of the two figures sets the loan.
- Day one advance
- The portion of the facility released at completion, usually against land value. The rest is drawn in stages as the build progresses.
- Drawdown schedule
- Tranches of build cost released against surveyed progress. A monitoring surveyor signs off each stage before the lender releases funds.
- Profit on cost
- Forecast profit divided by total cost (including finance). Lenders look for at least 20% as a buffer against slippage.
Worked example
A four-unit scheme, land to exit.
An experienced developer buys a plot with planning for four three-bed houses. The numbers stack up as follows.
- Land purchase
- £500,000
- Build cost (4 × £225k)
- £900,000
- Professional fees (10%)
- £90,000
- Contingency (10% of build)
- £90,000
- Total project cost
- £1,580,000
- Expected GDV (4 × £525k)
- £2,100,000
The lender offers a senior facility of £1.4m — a day one advance of £350k against the land and £1.05m of build funds drawn in tranches over an 18-month term. The developer contributes £180k in cash on day one.
- Loan to GDV
- 66.7%
- Loan to Cost
- 88.6%
- Finance cost over term
- ≈ £177,000
- Gross profit
- ≈ £318,000
- Profit on cost
- ≈ 17.9%
- Profit on GDV
- ≈ 15.2%
Model the drawdown properly and the finance cost lands materially below what a full-facility calculation would suggest — interest only accrues on funds actually drawn, not on the headline £1.4m from day one. On these numbers the scheme clears the 20% profit on cost threshold most lenders look for. The margin between a scheme that funds and one that does not is often the drawdown assumption, not the headline rate.
Filling the gap
When senior debt is not enough.
Stretched senior
A single facility taken to a higher LTC or LTGDV by one lender, priced accordingly. Simpler than running two facilities, and usually cheaper than a mezzanine layer once every fee is counted.
Mezzanine
A second, subordinated facility sitting behind the senior lender, filling the gap between senior debt and developer equity. Expensive, intercreditor-heavy, and worth it only where the scheme's margin can carry it.
Joint venture and profit share
The funder provides most or all of the equity in exchange for a share of profit. A genuine option for a developer with a site and a track record but no cash. Test the arithmetic carefully — a JV can cost more than mezzanine once the profit split is priced.
Experience
First scheme, or first scheme at this size?
After the site itself, experience is the second question every development lender asks. What they mean by it is narrow: schemes you have taken from land to practical completion, of a comparable type, at a comparable size, with evidence.
There is a real difference between no experience and no experience at this scale. A developer who has delivered four units and is proposing twenty is not a first-time developer, but most lenders will treat the jump as if they were. Stepping up two or three times in scheme size in one go reads as a first scheme regardless of history.
Routes that work: appointing an experienced main contractor with a demonstrable track record on similar schemes, accepting a project monitor, bringing in a JV partner who carries the delivery record, taking a lower LTC so the lender's exposure falls, or starting with a smaller scheme and building the history deliberately. Any one of those can turn a decline into an offer.
Around the facility
What sits around the facility.
Monitoring surveyor
Appointed by the lender, paid by you. An initial report on the appraisal and programme, then monthly visits to sign off each drawdown. Budget for it realistically and factor the sign-off lag into your cash flow.
Personal guarantees
Standard on development facilities, commonly capped between 20% and 40% of the facility, sometimes with a cost-overrun guarantee alongside. Negotiable, but rarely to zero.
Warranty and building control
A recognised structural warranty provider is a condition of most facilities, and of most buyers' mortgages. Arrange it early — retrospective cover is difficult or impossible.
S106 and CIL
Planning obligations and community infrastructure levy are project costs with their own payment triggers, often falling due at commencement. Lenders want them in the appraisal, not discovered at month three.
Exit
The development exit bridge.
Once the scheme is practically complete but unsold, a lower-rate facility can replace the development loan. It takes the pressure off the sales programme and cuts the monthly cost while units sell, rather than forcing discounted sales to hit a redemption date.
How development exit bridging worksPlanning reality
Assume slippage, price it in.
Planning timetables in England routinely run past target. A development facility has to live with that, not fight it.
Why lenders test for programme slippage
A term that overruns turns rolled-up interest into a compounding problem. Lenders stress-test the programme against realistic delay because they have seen exactly what happens when the build finishes but the facility has already expired.
Why an extension costs more than contingency
Extending at the back end means renegotiating from a position of weakness. Expect a fee, a higher rate on the extended period, and legal costs. Building three to six months of headroom into the initial term is almost always cheaper than buying it later.
What to assume, not hope for
Assume discharge of conditions takes months. Assume utility connections slip. Assume a wet winter. If those things do not happen, you exit early and pay less interest. If they do, the facility already covers them and the exit strategy still works.
Hope is not a programme. Contingency in the term is cheaper than extension fees at the end of it.
GDV calculator
Model your scheme on your numbers.
Change the inputs to see how cost, GDV and leverage move the ratios a lender will look at first — LTGDV, LTC and profit on cost.
Your scheme
Your figures
Below 20% profit on cost is thin margin for a lender to underwrite against.
- Contingency
- £90,000
- Total project cost
- £1,580,000
- Arrangement fee
- £28,000
- Total interest (rolled)
- £148,513
- Exit fee
- £0
- Other costs
- £25,000
- Total finance cost
- £176,513
- Day one cash in
- £150,000
- Total equity across the scheme
- £205,000
- Peak debt
- £1,576,513
- Gross profit
- £318,487
- Profit on GDV
- 15.17%
This calculator is for illustration only. It is not a quote, an offer, or a decision in principle. Interest is modelled month by month on drawn funds, with the arrangement fee capitalised on day one. Actual drawdowns depend on surveyor sign-off against build progress. Figures should be confirmed before you rely on them.
Free download
Take the list with you.
A one-page appraisal checklist — everything a development lender will ask for on day one, with notes on what makes each item acceptable. Free, no follow-up unless you want one.
FAQ
Questions we hear most often.
Have a scheme in front of you?
Send us the outline. You will get a straight answer on deliverability and indicative terms — not a form response.
Same working day response.