Property development finance for new build and conversion projects

Development finance is specialist property funding built around how building projects actually work: staged drawdowns, monitored progress, and a clear exit at the end. It is fundamentally different from a standard mortgage, and understanding that difference is the starting point for structuring any scheme successfully.

Whether you are breaking ground on a new build housing scheme, converting a commercial building into residential units, or delivering a complex mixed-use development, the right development finance structure can mean the difference between a profitable project and a costly one.

What is property development finance?

Property development finance is a short-term, project-specific lending facility used to fund the acquisition and construction costs associated with property development. Rather than advancing the full loan amount upfront, lenders release funds in stages tied to build progress.

This staged drawdown approach reflects the nature of construction itself. Costs are incurred progressively, and a lender releasing all funds on day one would carry unnecessary risk. Instead, a monitoring surveyor is typically appointed to verify works at each stage before the next tranche is released.

Lenders assessing a development loan are not simply valuing the site as it stands. They are underwriting the entire project: the planning position, the build budget, the developer’s track record, the professional team, and the projected Gross Development Value (GDV) on completion.

Who Uses Development Finance?

Development funding is used by a wide range of borrowers:

• Property developers delivering ground-up residential or commercial schemes
• Small and medium-sized builders funding new build housing
• Experienced landlords converting existing properties into multiple units or HMOs
• Property companies delivering phased or large-scale mixed-use projects
• Investors acquiring and refurbishing properties for resale or rental

The strongest applications are those where the scheme is clearly defined, the costs are realistic, and the exit strategy (whether sale of completed units or refinance onto a term facility) is credible from day one.

Not sure whether your project qualifies? Speak with one of our development finance specialists and we will give you a straightforward assessment, with no obligation and a response within 48 hours.

Types of Development Projects We Can Help Fund

Development finance is not a one-size-fits-all product. The structure that works for a five-unit housing scheme will differ significantly from one designed for a large apartment block or a commercial conversion.

We can support:

• Ground-up residential development: new build houses, apartments, and bungalows
• Residential conversions: converting offices, barns, or commercial property into homes
• HMO development and refurbishment: creating or upgrading houses in multiple occupation
• Commercial development schemes: offices, industrial, retail, and mixed-use assets
• Heavy refurbishment projects: properties requiring structural works, full strip-out, or reconfiguration
• Permitted development conversions: office-to-residential and similar change of use schemes

For residential-led schemes, our Residential Development Finance page covers the specific considerations around housing developments in more detail.

For business premises, office schemes, industrial projects, and mixed-use assets, our Commercial Development Finance page explains how more complex developments are structured and funded.

How Development Finance Is Structured

Loan-to-Cost and Loan-to-GDV

Two metrics define how lenders assess the quantum of lending on development projects:

Loan-to-Cost (LTC): The percentage of total project costs the lender will fund. Most mainstream development lenders advance up to 70–75% of total costs, though specialist lenders can extend further in the right circumstances.

Loan-to-GDV: The loan amount as a percentage of the projected Gross Development Value on completion. Lenders typically cap this at 60–65% of GDV, though this varies by lender, project type, and developer experience.

Staged Drawdowns

Funds are released in agreed tranches as construction progresses. A monitoring surveyor appointed by the lender will inspect the site at each stage and certify that works have been completed to the required standard before the next drawdown is approved. This keeps funds aligned with actual build progress.

Interest

Development finance interest is typically handled in one of two ways:

• Rolled-up interest: Interest accrues throughout the facility and is repaid in full on exit, alongside the principal. No monthly payments are required during the build period.
• Retained interest: The lender retains an amount equivalent to the estimated total interest from the gross loan on day one. The borrower never sees this portion of the loan, but it reduces the effective net advance.

Both approaches have implications for the net funds available. Understanding which method your lender uses, and modelling it into your project appraisal, is essential.

Development Finance: A Realistic UK Example

Illustrative figures only. Actual rates, fees and loan amounts depend on the lender and your circumstances.

To illustrate how development finance works in practice, consider the following scenario:

The project: A developer is acquiring a site with planning permission for eight residential units.

In this example, the LTC constraint bites first, meaning the developer needs to bring £600,000 of equity. The gross facility of £1.4m is then drawn in stages as construction progresses.

Assuming a 12-month build and rolled-up interest at 0.85% per month on the average drawn balance, the total interest charge would be approximately £95,000–£110,000, depending on drawdown profile. This is settled on exit when the units are sold.

Arrangement fees (typically 1–2% of the gross facility), valuation costs, monitoring surveyor fees, and legal fees should all be accounted for in the project appraisal before a lender is approached.

Want to model the numbers on your own scheme? Request a tailored quote and we will run through the costs and structure with you, with no obligation.

The Development Finance Assessment Process

What Lenders Look At

A development lender’s underwriting process is considerably more involved than a standard mortgage application. Key factors assessed include:

The Site and Planning Position Lenders want to see a clear, implementable planning consent. Outline planning permission carries more risk than full detailed consent, and some lenders will only proceed once detailed permission is in place.

The Build Budget and Programme Lenders will scrutinise the cost schedule in detail. A detailed cost plan from a quantity surveyor or established contractor carries significantly more weight than a rough estimate. Lenders are wary of undercapitalised schemes where the build budget looks optimistic.

The Developer’s Track Record Experience matters. A first-time developer will face tighter terms and may need a more experienced professional team to compensate. An established developer with a demonstrable record of delivering similar schemes on time and on budget is a much stronger proposition.

The Professional Team Architects, project managers, structural engineers, and solicitors all factor into the lender’s assessment. A scheme supported by an experienced and credentialed team reduces delivery risk and strengthens the application.

The Exit Strategy Lenders need to understand how and when they will be repaid. The two most common exits are sale of the completed units or refinance onto a buy-to-let or commercial mortgage. A credible, well-evidenced exit is one of the most important elements of any development finance application.

The Staged Drawdown Process

1. Acquisition drawdown: initial advance to fund the land or property purchase
2. Build drawdowns: subsequent releases tied to build progress and surveyor sign-off
3. Final stage: typically triggered on practical completion of the scheme
4. Exit: facility repaid via sales proceeds or refinance

The clearer the project timeline and the more credible the cost plan, the smoother this process tends to be.

Development Finance Costs: What to Budget For

These figures are indicative. Actual costs depend on the lender, the scheme, and the complexity of the transaction.

Development Finance Eligibility Checklist

Before approaching lenders, experienced brokers will typically confirm the following:

• Full planning permission or credible outline planning in place
• Detailed cost schedule from a reputable contractor or quantity surveyor
• Developer CV demonstrating relevant prior experience
• Professional team identified (architect, structural engineer, solicitor)
• Clear exit strategy supported by comparable market evidence
• Sufficient equity contribution to satisfy LTC and LTV requirements
• Site free of title issues, contamination concerns, or covenant complications
• Cashflow projection covering the full build programme

If you can tick most of these boxes, you are likely in a strong position to proceed. Submit an enquiry today and one of our team will review your project and come back to you within 48 hours.

Mezzanine Finance: Filling the Equity Gap

For larger developments, or where a developer’s equity position does not quite reach the required contribution, there is a third layer of capital available within the overall funding stack.

Mezzanine Development Finance sits between the senior development loan and the developer’s equity. It can fund a portion of the equity requirement, allowing developers to proceed with schemes they might otherwise be unable to fund.

Mezzanine finance carries a higher interest rate than senior debt to reflect its subordinate position in the capital structure, but it can materially improve a developer’s ability to deploy capital across multiple schemes simultaneously.

Common Mistakes Developers Make with Development Finance

Approaching lenders too early. Lenders want detail. Approaching before a cost plan, professional team, and planning position are confirmed wastes time and can create an unfavourable impression.

Underestimating build costs. Optimistic cost schedules unravel during the build. Contingency allowances of 10–15% on build costs are standard for a reason.

Ignoring total finance costs in the appraisal. Rolled-up interest, arrangement fees, monitoring costs, and legal fees can represent a significant proportion of project costs. Failing to model them accurately distorts the return on investment.

Not planning the exit early enough. A developer who reaches practical completion without a clear exit route risks paying penalty interest or being forced into a distressed sale.

Using the wrong lender for the project type. Not every development lender covers every project type, region, or borrower profile. Working with an experienced specialist broker significantly improves the chances of finding the right lender first time.

Why Work With a Specialist Development Finance Broker?

Development finance is a specialist market. The number of lenders, the complexity of structures, and the underwriting criteria involved mean that the right presentation of a case matters enormously.

Our role is to understand your scheme, identify which lenders are best placed for that type of project, and help you present a cleaner, more credible case from the outset.

Ready to discuss your project? Submit an enquiry or speak with our development finance team today. We aim to respond to all enquiries within 48 hours.

Development finance for first-time developers

Some lenders do fund a first project, so being new is not an automatic bar. It does change what a lender expects, and nobody can promise an approval. Expect:

• More scrutiny. The lender will test the costs, the programme and the exit harder than it would for a developer with completed schemes behind them.
• A stronger professional team. An experienced main contractor on a fixed-price contract, with an architect and a quantity surveyor or project manager, helps to cover the experience you do not yet have.
• A simpler scheme. A small build or conversion with full planning permission is easier to place than a large or complex one.
• More of your own money in. Lenders usually want a first-time developer to carry a bigger share of the cost.

A first application is stronger with related experience (a refurbishment, a self-build or a construction trade), a detailed cost plan with a contingency, proof of your funds and sales evidence for the finished homes. If you have not bought a site yet, ask us for a view on the scheme before you commit.

Know the risk as well. The site is the lender's security and can be repossessed if the loan is not repaid, and lenders usually ask directors for a personal guarantee.

Buying the site and finishing the scheme

Property development finance funds the build. Two other loans often sit either side of it.

Land finance is a short-term loan secured on the site itself. Developers use it to buy land before the build facility is ready, for example at auction or while planning is being settled. It is usually repaid by the development loan once planning is in place.

Development exit finance comes at the other end. It repays the development facility when the build is complete or nearly complete, which gives you time to sell the units or refinance them. It is often priced below development finance because the build risk has gone, but it brings a new set of fees.

Work out loan to cost, loan to GDV and profit

Three measures show whether a scheme stacks up:

• Loan to cost is the loan as a percentage of the total project cost before finance: the site, the build, and professional fees and other costs.
• Loan to GDV is the loan as a percentage of the gross development value, which is what the finished scheme is expected to be worth.
• Profit is the gross development value less the total project cost and the cost of finance, often shown as a percentage of cost or of GDV.

Lenders set their own limits on the first two and use the third to judge how much room the scheme has if costs rise or prices soften. The limits that apply to you come from the lender's offer. Put your own figures into the development finance calculator to see all three, along with the money you would need to put in. Its profit figure is before sales costs and tax. The glossary explains these and other terms.