Development FinanceCalculator
Model your property development project with precision. Calculate LTGDV, LTC, profit margins, and funding requirements for ground-up builds, conversions, and heavy refurbishments.
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Development Finance Summary
Interest calculated on average loan drawn (65% of facility). Excludes arrangement fees, legals, valuations, contingencies, and other costs. Most lenders require minimum 20% profit on GDV.
The Complete Guide to Development Finance in the UK
Development finance is a specialist form of property lending designed specifically for developers undertaking construction projects, from ground-up residential schemes to commercial conversions and heavy refurbishments. Unlike traditional mortgages, development finance is structured around the project lifecycle, with funds released in stages as construction progresses and verified by independent quantity surveyors.
The UK development finance market offers funding from £150,000 to £100m+, catering to first-time developers through to experienced housebuilders and commercial developers. Lenders assess projects primarily on the viability of the scheme—the relationship between costs, end value (GDV), and profit margins—rather than solely on the borrower's personal income. This makes development finance accessible to developers who may not qualify for traditional lending but have viable, well-planned projects.
UK Development Finance Market (2024-2025)
- • Typical interest rates: 8% - 14% per annum
- • Maximum LTGDV: 65-70% (most lenders cap at 65%)
- • Maximum LTC: 85-90%
- • Build cost funding: Up to 100% of construction costs
- • Typical project terms: 12-24 months
- • Minimum profit requirement: 20% on GDV
How Does Development Finance Work?
Development finance operates fundamentally differently from traditional property lending. Rather than lending against current value, development lenders advance funds based on the projected end value (Gross Development Value or GDV) and release capital in staged drawdowns aligned with construction progress.
Day 1 Advance
Initial tranche released on completion to fund land acquisition. Typically 60-70% of purchase price or current market value. Some lenders offer "Day 1 Uplift" where they'll lend against a higher value if you've purchased at a discount.
Build Drawdowns
Construction costs released in arrears against QS-certified progress. Typically monthly drawdowns once work is verified. Up to 100% of build costs funded, reducing developer equity requirement.
Exit & Repayment
Loan repaid from unit sales or refinance onto term lending. Interest typically rolled up throughout and paid at exit. Development exit finance available for completed schemes awaiting sales.
Understanding the Key Metrics
| Metric | What It Measures | Typical Requirements |
|---|---|---|
| LTGDV | Total facility ÷ Gross Development Value | Maximum 65-70% |
| LTC | Total facility ÷ Total Project Costs | Maximum 85-90% |
| Profit on GDV | Net Profit ÷ Gross Development Value | Minimum 20% |
| Profit on Cost | Net Profit ÷ Total Project Costs | Minimum 25%+ |
| Build Cost £/sq ft | Total build costs ÷ Total floor area | £100-250/sq ft typical |
| GDV £/sq ft | End value ÷ Total floor area | Location dependent |
Types of Development Projects We Finance
Ground-Up Residential
New build houses and apartments from single units to large-scale developments. Includes self-build projects with appropriate experience.
- • Single units to 100+ homes
- • Houses, flats, maisonettes
- • Garden developments
Conversions
Office-to-residential, commercial-to-residential, barn conversions, and change of use projects utilising Permitted Development Rights.
- • Office to residential (Class O)
- • Commercial to residential
- • Agricultural conversions
Heavy Refurbishment
Substantial renovation projects requiring structural works, including sub-division into multiple units and reconfiguration schemes.
- • Structural alterations
- • Sub-divisions & HMOs
- • Complete renovations
Commercial Development
Offices, retail, industrial, and mixed-use schemes. Commercial development often requires stronger pre-lets or pre-sales.
- • Office & retail schemes
- • Industrial/warehouse
- • Mixed-use developments
Student & PBSA
Purpose-built student accommodation and HMO conversion projects targeting the student rental market near universities.
- • Student pod schemes
- • HMO conversions
- • Cluster flats
Land & Planning
Land acquisition finance and planning gain funding for sites with planning permission or strong planning prospects.
- • Land with planning
- • Planning gain finance
- • Strategic land
Development Finance Costs Explained
Development finance carries higher costs than traditional mortgages, reflecting the increased risk and complexity of construction lending. Understanding the full cost structure is essential for accurate project appraisals and avoiding margin erosion.
Lender Costs
Third Party Costs
Interest Calculation Note
Interest on development finance is typically calculated on the average loan drawn, not the full facility. With staged drawdowns, you may only draw 65% of the facility on average, significantly reducing actual interest costs compared to headline rates.
Frequently Asked Questions About Development Finance
What experience do I need for development finance?
Experience requirements vary significantly by lender and project complexity. For smaller schemes (1-4 units), some lenders accept first-time developers with strong professional teams. Larger or more complex projects typically require demonstrable track record of similar schemes. If you're new to development, consider partnering with experienced contractors or project managers, starting with simpler refurbishment projects, or presenting a strong professional team (architect, contractor, QS) to compensate for personal inexperience.
What deposit do I need for development finance?
Equity requirements depend on the deal structure. With typical 65% LTGDV and 85-90% LTC parameters, developer equity usually represents 10-15% of total project costs. For a £1m project, expect to contribute £100,000-£150,000 of your own funds. Some lenders offer higher leverage (up to 90% LTC) for experienced developers with strong track records, while first-time developers may need to contribute more. Equity can sometimes be in the form of owned land or cross-charged property rather than cash.
How do drawdowns work on development finance?
Build costs are released in arrears following verification by an independent monitoring surveyor (QS). The process typically involves: (1) Complete a stage of works per the agreed schedule; (2) Request drawdown from lender; (3) QS inspects and certifies works completed; (4) Lender releases funds (usually within 5-7 working days of certification). Most lenders operate monthly drawdown cycles, though some offer fortnightly for larger projects. Costs are funded in arrears, so contractors need to be paid before the drawdown arrives—factor this into cash flow planning.
What happens if my project overruns or costs increase?
Cost overruns are one of the biggest risks in development. Lenders typically require a 5-10% contingency built into your cost plan. If costs exceed the contingency: additional equity is usually required first; some lenders may increase the facility if headroom exists within their LTGDV parameters; alternatively, mezzanine finance can provide top-up funding. For time overruns, most development loans include extension options (typically 3-6 months) for additional fees. Communicate early with your lender if you foresee issues—they're far more accommodating proactively than reactively.
Do I need planning permission before applying?
Most development lenders require full planning permission to be in place before completing the loan. However, there are options at earlier stages: Planning gain finance can fund sites through the planning process; land loans can be secured against sites with outline or pending planning; Permitted Development schemes (Class O/Q conversions) can proceed with Prior Approval only. Some lenders will issue terms subject to planning, allowing you to negotiate with confidence before planning is confirmed.
What's the difference between development finance and a bridging loan?
While both are short-term property finance, they serve different purposes:Bridging loans are typically used for acquisition, light refurbishment, or transitional situations. Funds are usually advanced in full on day one, with lower overall costs but no build cost funding.Development finance is structured for construction projects with staged drawdowns against certified works. Higher arrangement and monitoring costs, but enables much higher leverage through 100% build cost funding. For projects with minimal construction (<15% of GDV), a heavy refurb bridge might be more cost-effective. For significant builds, development finance structure is essential.
Who Uses Development Finance?
SME Developers
Small to medium schemes from 1-50 units, conversions, and mixed-use projects.
Professional Builders
Contractors transitioning to development or building their own schemes.
Property Investors
Investors moving from buy-to-let into development for higher returns.
Landowners
Landowners developing their own sites rather than selling with planning.
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Why Choose CMB for Development Finance?
Commercial Mortgages Broker is a trading style of CMB Finance Ltd. We are a provider of non-regulated lending solutions. Your property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.