Funding property development projects from acquisition through to completion
Development finance funds the construction, conversion or significant refurbishment of property. It is more complex than most other property finance products because lenders are not just assessing a property that exists today. They are assessing a project, including what it will cost, how long it will take, what it will be worth when it is finished, and how the borrower will repay the debt.
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Getting a development finance case properly prepared and presented makes a significant difference, both to whether funding is available and to the terms on which it is offered.
What development finance covers
New build residential developments, including houses and apartment schemes
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New build commercial and mixed-use developments
Conversion projects, such as office to residential or commercial to residential
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Significant refurbishment projects where the scope of work is too substantial for standard bridging or refurbishment finance
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Permitted development projects
How development finance works
Development finance is typically structured in two parts. The first covers the cost of the land or purchase. The second covers the build costs, which are drawn down in stages as the project progresses and work is verified. This staged draw-down means the borrower only pays interest on what has been drawn, which helps manage the cost of finance during the build period.
The amount available is typically expressed as a percentage of the total development costs and as a percentage of the Gross Development Value (GDV), which is the projected value of the completed development. Lenders will commission an independent valuation and cost assessment as part of their due diligence.
What lenders look for
Development finance lenders assess both the project and the developer. A poorly prepared case or unrealistic cost schedule will cause delays and may result in a decline regardless of the project's potential.
Planning permission in place or, in limited cases, clearly imminent
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A detailed and realistic cost schedule prepared with professional input
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An independent valuation of the completed development
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A realistic programme with contingency built in
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A clear exit route, typically the sale of the completed units or refinance onto investment finance
Experience of similar projects, or a strong professional team where experience is limited
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Financial position and ability to contribute equity to the project
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Credit history and background
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The professional team: architect, quantity surveyor, main contractor and legal representation
Joint venture Development Finance
For certain development projects, joint venture (JV) finance may be an option. In a joint venture arrangement, a funding partner provides the development capital in return for a share of the profit, rather than charging interest in the conventional way. The developer typically contributes the land, site or development opportunity.
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Joint venture finance can allow developers to progress projects where they do not have sufficient capital to fund the development conventionally. It is not suitable for every situation, and the profit share arrangement means the total return to the developer is lower than it would be if the project were funded with conventional debt.
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JV lenders are selective and typically look for projects with strong fundamentals, experienced developers or strong professional teams, and a clear route to profit realisation. We can help assess whether your project may be suitable for this structure.
Is this right for your situation?
Development finance is likely to be relevant if:
You are building new residential or commercial units from the ground up
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You are converting an existing building from one use to another
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The scope of your refurbishment project is too substantial for standard bridging finance
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You have planning permission and want to understand what development funding may be available
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It may not be appropriate if:
Planning permission is not yet in place and there is no clear timeline for when it will be granted
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The project costs have not been professionally assessed and a realistic cost schedule is not available
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The exit route is unclear or dependent on market conditions that cannot be reliably forecast