Development Loans

What types of projects can a Development Loan fund?

Development finance is highly flexible in terms of what it can fund. New-build residential schemes of any scale are the most common application: single plots through to multi-unit developments. Office-to-residential conversions, commercial-to-residential conversions, large-scale refurbishments, and mixed-use schemes are all regularly funded.

Ground-up builds and heavy refurbishments both qualify, though lenders assess them differently. A full new build requires more security and typically a larger developer equity contribution. A light refurbishment of an existing structure is considered lower risk and may attract better terms.

Land can also be funded, though typically at lower LTVs than constructed property. Sites with full planning permission are much more straightforward than sites without. Having planning in place before applying for development finance significantly improves both the terms available and the speed of approval.

How is a Development Loan structured?

Development finance is released in stages, called drawdowns, aligned with construction milestones. The lender instructs a monitoring surveyor who visits the site to verify progress at each stage before funds are released. This protects the lender and ensures capital is being deployed as agreed.

Common drawdown stages include: initial land or acquisition payment, groundworks and foundations, structural completion, weathertight stage, fit-out and finishes, and practical completion. The exact structure is agreed upfront and built into the loan facility.

Interest is charged only on funds that have actually been drawn, not on the full facility. This makes development finance more cost-efficient than it might initially appear: a £2m facility doesn’t cost as much as borrowing £2m on day one, because the money comes out gradually over the course of the build.

How much can I borrow?

Lending is calculated against the Gross Development Value (GDV): the estimated market value of the completed development. Most lenders advance up to 65% to 75% of GDV, and many will fund up to 100% of build costs provided the land or site value provides sufficient security.

For a residential development with a projected end value of £3m, a lender advancing 65% of GDV would provide up to £1.95m. If the developer already owns the land, that site value can contribute to the security calculation and increase the available loan.

Loan amounts range from around £100,000 for smaller single-unit refurbishments to many millions for large schemes. The scale of what’s available is determined by the project’s viability, the developer’s track record, and the strength of the security.

What’s the difference between a Development Loan and a Bridging Loan?

Both are short-term property finance, but they serve different purposes and are structured differently. A bridging loan is designed primarily for acquisition: moving fast to purchase a property before longer-term finance is arranged. It doesn’t typically fund a construction programme.

A development loan is designed to fund the build itself. Funds are released in stages, monitored by a surveyor, and aligned with construction progress. It’s not usually used for acquisition, though some lenders offer combined facilities that cover both land purchase and development.

In practice, the two are often used together. A developer buys land with a bridging loan, then draws down a development facility to fund the build. Understanding which product covers which phase is important for structuring the finance correctly from the outset.

Do I need planning permission before applying?

Full planning permission is not technically required to apply, but it makes a very significant difference to what’s available and at what terms. Most mainstream development lenders will only advance against sites with full planning consent in place. The planning risk is simply too uncertain without it.

Some specialist lenders will fund sites with outline planning or where planning is being actively pursued, but at lower LTVs and higher rates. The uncertainty around whether planning will be granted represents genuine risk, and lenders price accordingly.

Getting planning in place before approaching development finance lenders is by far the most effective preparation. It shortens the application process, improves the terms on offer, and demonstrates to lenders that the project has been through a level of regulatory scrutiny.

What do lenders look for in a Development Finance application?

Four things above all else: the viability of the project, the quality of the exit strategy, the developer’s track record, and the adequacy of the security.

Project viability means the numbers work: realistic build costs, a credible GDV, and a margin that makes the project worth completing. The monitoring surveyor will scrutinise the cost schedule in detail.

The exit strategy is how the loan gets repaid: typically sale of the completed units or refinancing onto a commercial mortgage. Lenders need this to be realistic and achievable within the loan term.

Track record matters. Experienced developers with completed schemes find it easier to access development finance than first-timers. First-time developers can still qualify, but need a strong project, experienced contractors, and ideally a project manager with a track record to strengthen the application.