Development Finance

What Is Development Finance?

Development finance is specialist short-to-medium-term funding used to finance property development projects. Unlike conventional mortgages or bridging loans, development finance is typically drawn down in stages as the build or refurbishment progresses, rather than in a single lump sum at the outset.

Development finance lenders advance funds against the gross development value (GDV) of the completed project, and the amount available is generally linked to the land value and projected construction costs. This makes it different from standard property finance.

Site Acquisition

Development finance can be used to fund the purchase of a development site, sometimes with planning permission already in place and sometimes on a speculative basis subject to planning. Some lenders will lend on sites without planning permission where the developer has strong experience and a credible planning strategy.

Ground-Up Development

Ground-up residential and commercial development projects are a core use case for development finance. Funding is typically structured to cover land acquisition costs and construction costs, with funds released in stages as the build progresses based on a monitoring surveyor's report.

Heavy Refurbishment

Heavy refurbishment finance applies where a property requires significant structural works, conversion or change of use — for example converting an office building to residential flats, or undertaking a full structural refurbishment of a property that is not habitable in its current state. This is distinct from light refurbishment bridging finance, which is used for cosmetic or non-structural works.

Development Exits

A development exit loan is used when a development project is complete or near-complete but units have not yet been sold or refinanced. Development exit finance allows the developer to repay the more expensive development finance facility and move to a lower-rate short-term loan while sales or refinancing progresses.

Staged Drawdowns

Development finance is usually structured with staged drawdown of funds. Rather than receiving the full loan amount upfront, the developer draws funds as build milestones are reached. An independent monitoring surveyor typically inspects the site before each drawdown to confirm progress and certify costs. This protects both the lender and the developer.

Gross Development Value (GDV)

GDV is the total projected value of the completed development — either the estimated sale values of all units, or the projected investment value if the scheme is intended to be retained. Lenders typically assess development finance applications against the GDV, with loan amounts expressed as a percentage of GDV (often 60–70%) and a percentage of total development costs (often 80–90%).

Borrower Experience

Development finance lenders place significant weight on the track record and experience of the developer. Lenders will typically expect developers to demonstrate completed projects of a similar scale and nature to the proposed scheme. Less experienced developers may access lower LTVs, or may need to partner with experienced professionals to satisfy lender requirements.

Planning Permission

Most development finance lenders require full planning permission to be in place before advancing funds for construction. Some lenders will lend at the planning stage or provide bridging finance to cover the cost of obtaining planning. Having full planning permission in place significantly improves lender appetite and the terms available.

Lender Monitoring

Development finance lenders typically appoint an independent monitoring surveyor to oversee the project and certify drawdown requests. The monitoring surveyor provides regular reports to the lender on build progress, cost to complete, and compliance with planning conditions. This is an important part of the development finance process and the cost of monitoring is typically included in the project budget.

How NexGen Finance Can Help

NexGen Finance helps help clients access development finance lenders and specialist brokers suited to their project type, experience level and funding requirements. We can help review your development finance enquiry and connect you with appropriate contacts in the development finance market.