Guide 01
Getting Started with
Development Finance
Everything you need to understand before approaching a lender for the first time.
What is development finance? Meaning & definition
Development finance is a specialist short-term loan used to fund the construction, conversion or substantial refurbishment of property. The meaning is specific: unlike a mortgage, it's designed for building — the money is released in stages as construction progresses, and the loan is repaid when you sell or refinance the completed units.
It's fundamentally different from a buy-to-let mortgage or a bridging loan, though all three are used in property. Development finance is specifically structured around a build programme, with drawdowns tied to construction milestones.
Most development finance loans have a term of 12–24 months (matching the build programme) and interest is typically "rolled up" — meaning you don't make monthly payments. Instead, the interest accrues and is repaid along with the capital when the project completes.
How does it work?
The lender provides a facility — a total amount they're willing to lend. This is released in tranches:
Day 1 Drawdown
Land purchase price, SDLT, and legal fees are drawn on day one to complete the site acquisition.
Build Drawdowns
Construction costs are released in stages — typically monthly or at key milestones. A monitoring surveyor inspects progress before each release.
Repayment
When units sell (or you refinance), the loan is repaid in full — capital plus rolled-up interest and fees.
What do lenders look for?
Every lender weighs these factors differently, but these are the core criteria:
The Site
Location, planning status, and exit demand. Lenders want to know that completed units will sell — or let — in that area at the values you're projecting.
The Numbers
Does the development appraisal stack up? Lenders typically want to see at least 20% profit on cost and sensible build cost assumptions backed by a QS report.
The Developer
Your track record, net worth, and experience. First-timers aren't excluded — but the project and team need to be stronger to compensate.
The Team
Experienced contractor, reputable architect, competent QS. If you're new, your professional team needs to demonstrate that the project is in safe hands.
The Equity
How much of your own money is going in? Lenders want "skin in the game" — typically 25–40% of total project costs, depending on the deal structure.
The Exit
How will you repay? Sales, refinance, or forward commitment? Lenders need a clear, credible exit strategy before they'll commit funds.
Key metrics explained
LTV — Loan to Value
The loan amount as a percentage of the completed development value (GDV). Typical max: 65–70% LTV.
LTV = Loan ÷ GDV × 100
LTC — Loan to Cost
The loan amount as a percentage of total project costs. Typical max: 80–90% LTC (with mezzanine).
LTC = Loan ÷ Total Costs × 100
GDV — Gross Development Value
The total sales revenue of the completed development. This is what your units are worth when finished and sold.
GDV = Sum of all unit sale prices
Profit on Cost
Developer profit divided by total costs. This is the metric lenders care about most. Target: 20%+ for most lenders.
Profit on Cost = (GDV − Total Costs) ÷ Total Costs × 100
Profit on GDV
Developer profit as a percentage of GDV. Target: 15%+ typically. This is the metric estate agents and valuers prefer.
Profit on GDV = (GDV − Total Costs) ÷ GDV × 100
FAQ
Development finance: meaning & common questions
What is the meaning of development finance?
Development finance is a specialist short-term loan used to fund the construction, conversion or substantial refurbishment of property. The meaning is specific: it is not a mortgage and not a bridging loan — it is a build-stage facility where money is released in tranches as construction progresses, with interest typically rolled up and the loan repaid when the completed units are sold or refinanced.
What does development finance mean in property?
In a property context, development finance means a facility structured around a build programme. The lender funds land acquisition on day one, then releases construction tranches monthly or at agreed milestones, with a monitoring surveyor signing off progress before each drawdown. Terms typically run 12–36 months, matching the build and sales period.
Is development finance the same as a mortgage or bridging loan?
No. A mortgage is long-term and assumes a completed, income-producing or owner-occupied asset. A bridging loan is short-term but generally lump-sum and not structured around a build programme. Development finance is purpose-built for construction — phased drawdowns, rolled-up interest, and an exit tied to sale or refinance of completed units.
Next Up — Guide 02
Common Mistakes
The errors we see first-time developers make again and again — and exactly how to avoid them.
Read Guide 02 →