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
LTGDV — Loan to Gross Development Value
The most widely used sizing metric in development finance. Lenders advance up to a fixed percentage of what the completed scheme will be worth. Senior lenders typically lend up to 60–70% LTGDV; stretch senior or mezzanine structures can reach up to 85% LTGDV.
LTGDV = Loan ÷ GDV × 100
LTC — Loan to Cost
The loan amount as a percentage of total project costs. Typical max: 80–90% LTC (with mezzanine). Lenders apply both LTC and LTGDV tests and lend the lower of the two — on schemes with healthy margins, LTC is usually the binding constraint.
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 is the anchor number everything else hangs off — get an independent RICS valuation before you approach lenders.
GDV = Sum of all unit sale prices
Profit on Cost
Developer profit divided by total costs. This is the metric lenders care about most — it tells them how much of a margin exists before the scheme loses money. Target: 20%+ for most lenders; some require 25% on higher-risk schemes.
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. On a scheme with a 20% profit on cost you will have roughly a 17% profit on GDV — the two numbers move in lockstep.
Profit on GDV = (GDV − Total Costs) ÷ GDV × 100
Before you approach a lender
Most first enquiries fail before they start — not because the scheme doesn't work, but because the developer arrives without the basics. Here's what to have ready:
A development appraisal
Even a rough one. GDV, build costs, land, professional fees, finance costs, developer profit. Lenders won't engage seriously without numbers — and we can help you build one if you don't have it yet.
Planning status
Full planning permission unlocks the widest lender panel and best rates. Outline permission or pre-app is workable for some. Without any planning, you're looking at bridging to fund the planning stage first.
A statement of experience
First-timers aren't excluded, but you need to show you've thought carefully about the risks. If you lack a track record yourself, lean on your contractor's or project manager's CV — lenders fund teams, not just developers.
Your equity position
How much of your own money is going in, and where is it coming from? Lenders will verify source of funds. If you're light on equity, mezzanine or equity finance can plug the gap — but you need to know the number before you pick up the phone.
We produce the development appraisal and cashflow for you as part of our service — so if the numbers aren't ready yet, that's not a barrier to starting a conversation. Arrange a call and we'll structure it together.
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 →