Development Finance
Funding for new builds, conversions, and development projects
Content reviewed: 13 January 2026
What are the requirements for development finance?
Development finance requires a 25-40% deposit, detailed planning permission, professional team including architects and quantity surveyors, and a credible exit strategy. Lenders typically advance 60-75% of GDV with staged drawdowns as construction progresses. First-time developers need experienced contractors and may face lower LTVs.
What is development finance?
Development finance is short-term funding for property development projects like new builds, conversions, and refurbishments. Funds are released in stages as work progresses, typically covering 60-75% of the completed value. Your Home Finance connects you with specialist development finance lenders.
What is Development Finance?
Development finance is specialist short-term funding (typically 12-24 months) designed specifically for property development projects—new builds, conversions of commercial buildings into residential, major refurbishments, or land development with planning permission. Unlike standard mortgages which fund existing habitable properties, development finance provides funding for construction work that will create or significantly enhance property value. Lenders advance money in stages as construction progresses, releasing funds against architect or surveyor certifications that work has been completed to required standards.
You can typically borrow 60-75% of your project's GDV (Gross Development Value—what it will be worth when finished) or 70-85% of total project costs (land, construction, fees), whichever is lower. Interest rates range from 6-12% annually, higher than standard mortgages due to the construction risk involved. Interest is usually 'rolled up' (added to the loan balance monthly) rather than paid, meaning you don't make monthly payments during the build. This preserves cash flow while work progresses. You fund the remaining 25-40% from your own equity or cash, demonstrating your commitment and providing the lender with a security buffer.
Development finance requires a credible exit strategy—how you'll repay the loan when the project completes. Common exits include selling the finished properties (provide market evidence of demand), refinancing onto buy-to-let mortgages if keeping them for rental income, or refinancing onto a residential mortgage if it's becoming your home. Professional team requirements are strict: you'll need qualified architects, structural engineers (if required), quantity surveyors, and established builders with insurance and warranties. First-time developers face lower LTVs and higher rates but can still access finance with detailed plans and experienced professionals. The profit potential—typically £50k-£150k+ on successful projects—justifies the costs and complexity involved.
Development Finance is arranged by introduction only.
Key Benefits of Development Finance
Borrow for land purchase, construction costs, and professional fees—all in one facility
Designed specifically for new builds, conversions, and refurbishments—not standard mortgages
Borrow against the project's completed value (GDV), not just current land value
Release funds in stages as work progresses, paying interest only on drawn amounts
Expert Tips & Insights
Development finance funds property development projects—new builds, conversions, refurbishments, or land development. Lenders advance funds in stages (land purchase, foundations, first fix, second fix, completion) against architect/surveyor certifications. You borrow based on GDV (Gross Development Value—what the finished project will be worth) and project costs. Typical structure: 60-70% of land cost upfront, then 100% of build costs drawn down in stages. Total lending: 60-75% of GDV. Interest is 'rolled up' (added to loan) monthly—you don't make payments during construction.
Development finance rates: 6-12% annually (0.5-1% per month) plus arrangement fees of 1-3% of loan amount. Higher than standard mortgages due to risk and complexity. Exit fees (1-2%) sometimes apply. You also pay for: professional team (architect £3k-10k, structural engineer £2k-5k, quantity surveyor £2k-8k), planning fees (£500-5,000), building control fees (£1,000-5,000), and contingency (10-20% of build costs). On a £400k project expect £30k-50k in professional and finance fees. But profit potential is £50k-150k+, justifying costs.
Development finance uses two metrics: LTV (Loan-to-Value) is loan as % of GDV (finished value). Typical: 60-70% LTV. Example: £600k GDV, lender offers 65% = £390k max loan. LTC (Loan-to-Cost) is loan as % of total project costs (land + build + fees). Typical: 70-85% LTC. Same example: £500k total costs, 75% LTC = £375k. Lender offers the LOWER of LTV and LTC calculations. You fund the difference from your equity/cash—typically 25-40% of project costs.
Funds release in stages tied to construction milestones: land purchase (60-70% land value), foundations complete (20-25% build costs), first fix (25-30%), second fix (25-30%), practical completion (final 15-20%). Independent monitoring surveyor inspects work at each stage before releasing next tranche. You pay monthly monitoring fees (£300-800/month). This protects lenders but also you—ensures work progresses correctly before more money is advanced. Build contracts must align with lender's stage payment structure.
First-time developers face tougher criteria: lower LTVs (55-65% vs 65-75%), higher rates (8-12% vs 6-9%), more equity required (35-45% vs 25-35%), and proven professional team mandatory. Experienced developers (3+ successful projects) access better terms. If it's your first project: start small (single dwelling or small conversion), use established builders with warranties, employ experienced professionals, and provide detailed plans. Some lenders offer 'newcomer developer' products. Consider joint ventures with experienced developers for first projects.
Development finance is short-term (12-24 months typically). You MUST have a credible exit: sell completed units (provide market evidence of demand/prices), refinance onto investment/BTL mortgages (show rental demand and affordability), or cash from other sources (business sale, inheritance—provide proof). Lenders assess exit viability before approving. Weak markets or overcomplicated exit plans result in decline. Build contingency into timeline—delays are common, ensure your term allows buffer time. Extension options exist but at higher rates.
Frequently Asked Questions
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