Guide to Development Finance

Last updated: 10 August 2026

Development finance is the only property lending where the thing being funded does not exist yet. Everything else follows from that. A lender cannot value a finished scheme that has not been built, so it lends against a forecast, releases the money in stages as the forecast turns real, and sends someone to check. That is why development finance has more moving parts, more professionals attached and more jargon than any other product on the market. This guide covers the structure rather than the sales pitch: how a facility is actually put together, the two numbers everything hangs on, where mezzanine money fits, who you will deal with along the way, and how funding shifts depending on what you are building.

How a Development Facility Is Built

A development facility is not one loan. It is a total commitment made up of parts, and only some of it lands in your account on day one. There is the land or acquisition tranche, released at completion to help you buy the site. There is the build tranche, held back and released in stages against work completed. And there is an allowance for interest and fees, usually rolled into the facility rather than paid monthly, because a site under construction produces no income to pay them from. The consequence catches first-time developers out: the total facility figure and the money you actually receive at the start are very different numbers. A £1.5m facility might advance £600,000 against the land on day one, with the rest arriving over the following months as the build progresses. Broad shape of the leverage: lenders commonly go up to around 65% to 70% of gross development value, and up to 80% to 90% of build costs, with the balance coming from you. Different lenders express it differently, and the binding constraint is usually whichever cap bites first.

The Two Numbers Everything Hangs On

Gross development value is what the finished scheme is worth. Not what you hope to sell it for, what a valuer instructed by the lender says it is worth once complete. Every leverage figure in your offer is a percentage of this. Total cost is the land, the build, the professional fees, the finance costs and the contingency. Not the build alone, which is the most common mistake in a first appraisal. The gap between them is your profit, and lenders look at it as a percentage of cost. A scheme showing a thin margin will struggle, not because the lender wants you to make money for your own sake, but because the margin is the buffer that absorbs a delay, a cost overrun or a softer market at the point of sale.

Senior Debt, Stretched Senior and Mezzanine

Most schemes are funded by senior debt, a first charge facility from a single lender. It is the cheapest money and it sets the leverage ceiling. Stretched senior is the same thing at higher leverage from a lender willing to go further, at a higher rate, without bringing a second party in. Mezzanine finance sits behind the senior lender on a second charge and fills the gap between what the senior will lend and what you can put in. It is materially more expensive, because that lender is repaid second if anything goes wrong, and it usually comes with tighter conditions. Used well, it lets you run two schemes instead of one. Used carelessly, it eats the profit on both. The question worth asking before you take it is not whether you can get mezzanine, but what the blended cost of senior plus mezzanine does to the margin on the scheme.

The Development Appraisal, and How a Lender Reads It

Your appraisal is the document the whole case rests on. It sets out the site, the scheme, the costs line by line, the build programme, the GDV, and the profit. Lenders read it backwards. They start with the GDV and ask whether the valuer will support it. They look at the cost per square foot against schemes they have funded recently. They look at the programme and quietly add time to it. Then they look at the contingency and form a view about whether you have been honest with yourself. An appraisal that is optimistic in three places is not three small problems, it is a credibility problem. The strongest submissions are the ones where the numbers are slightly conservative and clearly evidenced, with a builder’s quote behind the build cost rather than a rate per square foot pulled from memory.

The Professional Team You Will Meet

Development finance comes with people attached, and knowing who does what saves a lot of confusion. The valuer, instructed by the lender, gives the market value of the site as it stands and the GDV of the finished scheme. The monitoring surveyor, sometimes called an IMS, is the lender’s eyes on site. They review your costings before drawdown one, then inspect at each stage and confirm what has actually been built before money is released. You pay for them, and their reports set the pace of your cash flow. Keeping them well informed is genuinely in your interest. The quantity surveyor, if you appoint one, works for you rather than the lender, and a credible cost plan from a QS carries weight in underwriting. Then solicitors on both sides, dealing with title, planning conditions, warranties and the security.

Warranties, Insurance and the Build Contract

Three conditions appear in most development offers and hold up more drawdowns than any of them deserve to.

A structural warranty. Lenders on new build residential schemes will expect a ten year warranty to be in place, because without one the finished units are harder to sell and harder for a buyer to mortgage. Warranty providers want to be involved from the outset rather than invited in once the foundations are down, so arrange it early.

Site insurance. Contractor’s all risks cover, public liability and, where the structure exists, buildings insurance with the lender noted on the policy. Your ordinary property insurance will not cover a live construction site.

The build contract. Lenders want to see a proper contract with your main contractor rather than a handshake and a schedule of payments, along with evidence the contractor is solvent and has built something comparable. On larger schemes they may ask for collateral warranties from the professional team, so their position survives if you fall out with your architect halfway through.

None of this is difficult. It is simply slow if you leave it until the lender asks, and every week it takes is a week of interest on a facility that is not yet building anything.

How Funding Changes with the Scheme

Ground up build. The classic case: buy a site with planning, build, sell or refinance. Funded as described above. Conversion and permitted development. Turning offices, barns or a large house into flats. Lenders like these when the planning position is clear, and they get nervous when it depends on a permitted development route that has not been confirmed. Heavy refurbishment. Structural work, extensions, changes to layout. This sits on the boundary between bridging finance and development finance, and which side of the line it falls on comes down to how heavy the works are rather than what you call them. Self build. Funding your own home rather than a scheme for sale. Stage payments run either in arrears once each stage is signed off, or in advance so you can pay for materials before the work happens. Advance stage payments cost more and are worth every penny for cash flow. Commercial and mixed use schemes. Where the end product is let rather than sold, the exit is a refinance onto a term facility, so the commercial mortgage needs to be plausible before the development loan is agreed.

Buying the Land First

Plenty of developers find the site before the funding, and land is its own problem. Lenders will typically fund a proportion of the land purchase, with the balance from you, and they treat land with planning very differently from land without it. Land without consent is a speculative asset, and mainstream development lenders largely leave it alone. Land with detailed planning and a costed scheme is a fundable proposition. If you are buying at auction or racing a deadline to secure a site, short-term funding to acquire it, followed by a development facility once the scheme is ready, is a common and perfectly sensible route. More on our development finance page.

The Clever Way to Fund a Scheme

Two developers can take the same site to the same lender and get very different answers, because development lending is a judgement about the scheme, the numbers and the person running it, all at once. What moves the needle is a case that arrives complete: a realistic appraisal, evidenced costs, a programme that allows for weather and delays, and an exit that stands up whether the market is kind or not. That is what we do. Send us the site, the scheme and the numbers, and we will come back within 24 business hours with a straight answer on what is fundable, at what leverage, and which lenders are worth your time. Send it over and do the Clever thing. Development finance is not regulated by the Financial Conduct Authority. Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.