How Property Development Loans Work
Development finance is short-to-medium term funding used to build, convert or refurbish property. It is designed for developers, investors and landlords completing projects ranging from single-unit renovations to multi-unit, ground-up developments.
This guide explains how development finance works, what lenders look for, how much you can borrow, typical costs, GDV calculations, and how to structure your deal properly.
What Is Development Finance?
Development finance is a staged loan secured against property or land. Funds are released in phases to support the construction process, and the loan is repaid via sale of the finished units, refinance onto a long-term mortgage, or retained profits.
Typical project types include:
- Ground-up developments
- Conversions (e.g., commercial to residential)
- Heavy and structural refurbishments
- Multi-unit developments
- Mixed-use schemes
For lighter refurbishments, see our Bridging Loans Guide.
How Development Finance Works
Unlike bridging loans, development finance is released in stages. The lender assesses the project’s GDV (Gross Development Value) and monitors progress via quantity surveyor (QS) reports.
Two-part structure:
- Part 1: Land or property purchase
- Part 2: Build costs released in stages
Each drawdown is typically released after a QS confirms progress on site.
What Is GDV (Gross Development Value)?
GDV is the estimated market value of the completed project. Lenders base maximum borrowing on a percentage of GDV.
- Standard maximum: 60–70% of GDV
- Up to 100% of build costs
- Up to 75% of land purchase (sometimes more with collateral)
The stronger the GDV, the more leverage available.
How Much Can You Borrow?
Typical lending limits:
- Up to 75% of land cost
- Up to 100% of build cost
- Up to 60–70% of GDV
- Up to 100% total funding with additional security
Types of Development Finance
- Light Development Finance: No structural changes; cosmetic upgrades only.
- Heavy Development Finance: Extensions, structural works, conversions; projects requiring planning permission.
- Ground-Up Development Finance: Building from foundations; higher QS involvement.
- Development Exit Finance: Replaces expensive development funding once build is complete to give more time to sell or refinance.
Interest Rates & Fees
Development funding is specialised, and interest is usually rolled up into the loan.
Typical Costs:
- Monthly interest from 0.6%–1.2%
- Arrangement fee: 1–2%
- Exit fee: sometimes 1% (varies)
- QS monitoring, Valuation & Legal fees
What Lenders Look For
Lenders focus heavily on project risk, borrower experience and viability:
- Developer experience
- Planning permission (or pre-app)
- Build schedule & costings
- Contractor experience
- Contingency plans
- GDV and end value
Step-by-Step Development Finance Process
- Initial Assessment: Site details, cost breakdown, and planning position.
- Indicative Terms: A lender issues a term sheet.
- Valuation & QS Report: Red Book valuation and QS cost review.
- Legal Work: Specialist development solicitors handle the process.
- First Drawdown: Funds released for land or initial works.
- Ongoing Inspections: QS confirms each stage before further releases.
- Exit: Sale, refinance onto BTL, or development exit loan.
Exit Strategies for Development Finance
The exit plan is crucial for approval. Common routes include:
- Sale of completed units
- Remortgage onto buy-to-let mortgages
- Development exit bridging
- Refinance via SPV
Next Steps
Development finance offers the leverage and structure needed to take on renovation, conversion and ground-up projects — but choosing the right lender and preparing a strong proposal is essential for fast approval.
Explore related resources such as Bridging Loans Explained, Limited Company BTL, and run initial numbers using our mortgage calculators.
All development and bridging advice is provided by FCA-regulated advisers where regulated activity applies. Property may be repossessed if you do not keep up repayments on secured loans.
FAQs
Can I get development finance with no experience? Yes — but lenders will require stronger support, such as an experienced main contractor and detailed build schedule.
How quickly can development finance be arranged? Typically 2–4 weeks depending on valuation, QS reports and legal work.
Do lenders fund 100% of build costs? Yes — many lenders fund up to 100% of build costs, released in stages.
Is planning permission required? Usually yes for heavy or structural developments, unless permitted development applies.
Can development finance be used with an SPV? Yes — SPV lending is extremely common and often preferred.