Development finance is a short-term loan that pays for buying a site and building on it, with the money released in stages as the work progresses. Lenders on our panel will typically lend up to 70% of the finished scheme’s value (GDV) and up to 90% of total costs, and both first-time and experienced developers are considered.
Every property development needs the right foundations, and so does your funding.Â
Whether you’re a first-time or more seasoned developer, converting an existing building or starting from the ground up, our team takes the time to structure your loan so it stacks up strongly from the start.Â
We work with lenders that aren’t available to every broker and have access to the most competitive rates on the market. We can even release funds in stages aligned to the build progress, helping you manage your cash flow. We’re clever like that.
When you need development finance, you need more than just the right rate; you need someone who understands build costs, timings and exactly how funding should be released.
That is why we match your project to the right lender and agree on a funding structure that reflects how the build will actually be delivered, ensuring money is available when you need it.
Whether you’re converting an existing property or taking on a ground-up scheme, our team takes the time to understand your future plans and structures the funding so it stacks up, even when the scaffolding comes down.
Lenders size a development loan using two tests, and the loan is capped at whichever gives the lower figure.
Loan to gross development value (LTGDV) compares the loan with what the scheme will be worth once it’s finished. Loan to cost (LTC) compares the loan with what it will cost to deliver, meaning the site, the build, professional fees and contingency.
Take a site bought for £400,000, with build costs of £600,000 and £100,000 of fees and contingency. Total costs are £1.1 million and the finished units are valued at £1.6 million.
The lower figure applies, so the facility would be £990,000 and you would put in the remaining £110,000. Rolled-up interest usually sits inside the facility too, so the amount you can spend on the build is a little less than the headline loan. For a step-by-step version with fees and interest included, see our worked example of how much you can borrow on development finance.
If the senior loan leaves a gap you can’t fill from your own funds, there are two ways to borrow more.
Mezzanine finance is a second loan from a separate lender that sits behind the senior lender. It raises your total borrowing, but it costs more because the mezzanine lender is paid back second, and the senior lender has to agree to it.
Stretch senior finance does a similar job in a single loan. One lender goes further on gearing than a standard senior facility, so there is only one set of legals, one monitoring surveyor and one lender to deal with. The rate usually sits somewhere between senior and mezzanine pricing.
Which one suits depends on your margin, how much you need to bridge and how much the extra borrowing costs against your profit. We’ll model both before you commit.
Development finance is designed to be repaid when the units sell or the scheme is refinanced. If the build finishes before the sales do, development exit finance can repay the development loan and give you more time to sell or let.
Exit loans are usually cheaper than the development facility, because the build risk has gone. They can also release some of your profit early to put towards your next project. Lenders will want to see that the build is complete or close to it, plus evidence of sales values or rental demand. Our guide to development exit finance explains how it works in a slower market.
Typical timing: Straightforward development finance cases can be completed in 12 to 18 weeks. It can be quicker where planning, costings and the professional team are all in place before you apply.
Send us a quick outline including site address, GDV, loan amount, build costs, timescale, exit plan, and we will come back within 24 business hours with a clear plan and the likely structure of your loan.
Once that is approved, we will request a signed Decision in Principle (DIP), from you and instruct the property valuation and set out any conditions in clear terms.
We keep the legal process moving and update you at every stage. If, for whatever reason, a date shifts, you’ll hear it from us first (along with a new date).
Senior facility at ~68% LTGDV; staged draws; all units reserved off-plan; redeemed from sales in 11 months.
Stretch senior at ~72% LTGDV; robust contingency; exit to BTL on completion.
£1.25m facility; IMS-led draws; uplift captured on revaluation; part sell/part hold exit.
(Anonymised; figures indicative.)
You apply with details of the site, your costings, the planning position and the end value. The lender sends a valuer and a monitoring surveyor to check the figures. Once the loan completes, the first payment usually goes towards buying the site, and the rest is released in stages as the monitoring surveyor signs off each stage of the build.
Interest is normally rolled up and added to the loan, and you repay everything when the units sell or you refinance onto a longer-term mortgage.
The usual fees are a valuation fee, legal fees and a lender application or arrangement fee to cover the costs of setting up the loan.
It is very important that you fully plan your project to avoid unnecessary fees. If you decide to proceed with a property development loan through Clever Lending, we will also charge a fee (which will be discussed on application) and we can help you ensure you have the correct funds in place for the correct time period.
Due to the slight increase in risk with property development finance and the short-term nature, lenders charge slightly higher rates compared to a traditional mortgage.
Property Development finance interest rates are set by considering:
Property development loans are typically repaid in full at the end of the project, once the development has been completed.
If your sale or refinance takes longer than expected, lenders may allow an extension to the development loan, subject to review.
This will usually depend on:
Extensions can involve additional interest or fees, so the key is early communication and realistic planning from the outset. A well-structured development loan allows enough time and contingency to reduce the risk of pressure at the end of the project.
Yes. A number of UK lenders will fund first-time developers, and many assess the scheme more than your personal finances. They’ll look at the build costs and contingency, the planning position, the end value and how you plan to repay. Where you don’t have a track record, they’ll want related experience, such as a trade background, a buy to let portfolio or project management work, plus a credible main contractor and professional team.
Expect gearing to be a little lower than for experienced developers. Smaller schemes of one to four units and straightforward conversions are far easier to fund for a first project than a large ground-up site.
LTGDV stands for loan to gross development value. It’s the loan shown as a percentage of what the scheme will be worth once it’s finished. A £700,000 loan on a scheme with a GDV of £1 million is 70% LTGDV. Lenders use it alongside loan to cost to decide how much they’ll lend.
Cross-product questions, covering costs, timescales and which type of finance fits, are answered in our property finance FAQs.
Send us a quick enquiry, and we’ll come back within 24 business hours with a realistic route forward.Â
There are no fees payable until we have found you a solution, and you will always speak to an advisor, not to a triage team passing you on. We believe in speaking to an expert from the start.
Email us directly with your enquiry by clicking here or using our email [email protected].
