What Is Ground-Up Development Finance?
**Ground-up development finance** is a specialist loan facility designed to fund the construction of new buildings from scratch. Whether you are building a single house, a scheme of 50 apartments, or a commercial unit, ground-up finance provides the capital to purchase land, fund construction, and deliver a completed development.
This is the most common type of [development finance](/services/development-finance) in the UK market. The facility funds both the land acquisition and the full build programme, with staged drawdowns released as construction milestones are reached.
Ground-up projects carry more risk than conversions or refurbishments because there is no existing structure providing collateral during the early stages. As a result, lenders apply particular scrutiny to new build applications, making thorough preparation essential.
How Ground-Up Finance Is Structured
Land Purchase Advance
The first drawdown funds the **site acquisition**. Lenders typically advance:
- Up to 65-70% of the land purchase price, or
- Up to 60% of GDV on a day-one basis
The developer contributes the balance from their own equity. If you already own the site, the lender may release equity against the current site value as part of the day-one advance.
Construction Drawdowns
Build costs are released in **staged tranches** aligned with construction milestones. For a new build residential scheme, a typical drawdown schedule includes:
- Site clearance and enabling works
- Foundations and substructure
- Superstructure to roof level
- Weathertight and external envelope
- First fix (mechanical, electrical, plumbing)
- Second fix, kitchens, bathrooms
- External works and practical completion
Each stage is verified by a [monitoring surveyor](/knowledge-hub/development-finance-drawdowns-explained) before funds are released.
Typical Facility Parameters
| Parameter | Typical Range |
|---|---|
| LTGDV | 60-70% |
| LTC | 75-90% |
| Land LTV | 60-70% |
| Build cost funding | Up to 100% |
| Term | 12-24 months |
| Interest | 7-12% pa rolled up |
| Arrangement fee | 1-2% |
For full detail on costs, see our guide to [development finance rates and fees](/knowledge-hub/development-finance-rates-costs-fees).
Land Acquisition: Getting the Site Right
Types of Land for Development
- Serviced plots - land with planning permission, access, utilities and drainage in place
- Unserviced land with planning - planning permission granted but infrastructure not yet in place
- Land without planning - speculative purchase, typically funded with bridging finance rather than development finance
- Brownfield sites - previously developed land, may have contamination or demolition requirements
- Greenfield sites - undeveloped land, often with more complex planning requirements
Planning Permission Status
Most development finance lenders require **full planning permission** (or at minimum, a resolution to grant) before they will advance funds. Some key distinctions:
- Full planning permission - all conditions discharged or capable of being discharged pre-start. This is the gold standard for lenders.
- Outline planning - establishes the principle of development but not the detailed design. Most lenders will not advance until reserved matters are approved.
- Permitted development rights - for certain change-of-use projects, no full planning application is needed (see our permitted development guide).
For projects where planning is not yet secured, see our guide on [planning permission and development finance](/knowledge-hub/planning-permission-development-finance).
Due Diligence on the Site
Before committing to a land purchase, thorough due diligence is essential:
- Ground investigation - soil conditions, contamination, bearing capacity
- Flood risk assessment - Environment Agency flood maps, site-specific risk
- Ecology surveys - protected species, habitats, trees
- Topographical survey - levels, boundaries, existing features
- Title review - access rights, covenants, easements
- Utilities survey - capacity and connection costs for water, electric, gas, drainage
- Highways assessment - access requirements, Section 278 works
**Key Takeaway:** Never exchange on a land purchase without comprehensive site due diligence. Unforeseen ground conditions or planning complications can add hundreds of thousands to project costs and months to the programme.
Build Cost Considerations for New Build
Current Build Cost Benchmarks
Build costs vary significantly by location, specification, and project type. As a broad guide for 2025-2026:
| Project Type | Cost per sq ft (approx) |
|---|---|
| Standard residential houses | £130-£180 |
| Higher specification houses | £180-£250 |
| Residential apartments | £150-£220 |
| Premium apartments | £220-£350 |
| Commercial (office/retail) | £120-£200 |
These are indicative figures. London and the South East typically sit at the higher end, with regional markets at the lower end.
Professional Cost Verification
Lenders require build costs to be verified by either:
- A quantity surveyor (QS) cost report - detailed elemental cost breakdown
- A fixed-price building contract with an approved main contractor
- Or both, for larger schemes
Contingency Allowance
Lenders expect a **contingency of 5-10%** on build costs. Ground-up projects are more susceptible to unforeseen costs than refurbishments because:
- Ground conditions may differ from investigations
- Weather delays can extend the programme
- Material and labour cost inflation
- Design changes during construction
- Utility connection delays
**Key Takeaway:** Use a quantity surveyor to prepare your build cost estimate. A QS-verified cost plan gives lenders confidence and reduces the risk of a cost shortfall mid-project.
Lender Requirements for New Build Projects
Developer Experience
Experience requirements vary by lender and project scale:
- High street banks (Lloyds, NatWest, Barclays) typically require a strong track record with projects of similar scale and type
- Specialist lenders (Shawbrook, Hampshire Trust, Aldermore) are more flexible, particularly for smaller schemes
- Challenger banks and funds (Allica Bank, Investec, LendInvest) may accept less experience with a strong professional team
For developers undertaking their first scheme, see our guide to [development finance for first-time developers](/knowledge-hub/development-finance-first-time-developers).
Professional Team
Lenders want to see a competent professional team in place:
- Architect - RIBA registered with relevant project experience
- Structural engineer - for foundation and structural design
- Quantity surveyor - for cost verification and management
- Main contractor - experienced, properly insured, with relevant track record
- Project manager - may be the developer, a dedicated PM, or the main contractor
Building Contract
For schemes above approximately £1m build cost, most lenders require a **formal building contract** such as:
- JCT Design and Build - most common for development finance projects
- JCT Minor Works - suitable for smaller schemes
- JCT Standard Building Contract - for larger, architect-led projects
The contract should include appropriate insurance requirements, collateral warranties, and retention provisions.
Insurance Requirements
- Contractor's All Risks (CAR) insurance covering the works during construction
- Public liability insurance - minimum £5m for most lenders
- Employer's liability insurance
- Professional indemnity insurance for design team members
- Structural warranty (NHBC, Premier Guarantee, or similar) - required for residential sales
The Build Programme
Realistic Programming
A credible **build programme** is essential for your application. Key elements:
- Gantt chart or programme of works showing all activities and dependencies
- Realistic duration for each stage based on the project scope
- Allowance for lead times on materials and specialist subcontractors
- Weather contingency, particularly for groundworks and external trades
- Planning condition discharge timeline
Typical Build Durations
| Project Type | Typical Duration |
|---|---|
| Single house | 6-12 months |
| Small scheme (4-8 units) | 10-16 months |
| Medium scheme (10-25 units) | 14-22 months |
| Large scheme (25-50 units) | 18-30 months |
| Apartment block (20-40 units) | 16-26 months |
Phased Developments
Larger schemes may benefit from **phasing**, where the development is built and sold in stages. This allows:
- Earlier sales revenue to reduce peak debt
- Market testing before committing to later phases
- Smaller facility requirements per phase
- Faster debt reduction
Lenders generally view phased developments positively because they reduce peak exposure and demonstrate market absorption.
Exit Strategies for New Build
Open Market Sale
The most common exit strategy. Units are marketed and sold on the open market to owner-occupiers or investors. Lenders assess:
- Comparable evidence supporting projected sale prices
- Market depth - sufficient buyer demand to absorb the units
- Sales rate - realistic assumptions about how quickly units will sell
- Marketing strategy - appointed agent, launch plans, pricing strategy
Build to Rent (BTR)
Retaining completed units for rental income and refinancing to a [commercial mortgage](/services/commercial-mortgages) or portfolio buy-to-let product. This exit requires:
- Demonstrable rental demand at viable yields
- A refinance decision in principle from a long-term lender
- Sufficient rental income to service the long-term debt
Forward Sale
Selling units to a **housing association** or **institutional investor** before or during construction. This provides certainty of exit but typically at a discount to open market value.
Development Exit Finance
A short-term facility to bridge the gap between construction completion and unit sales. [Development exit finance](/knowledge-hub/development-exit-finance-guide) replaces the development loan at a lower rate while sales complete.
**Key Takeaway:** Your exit strategy should be evidenced, not aspirational. Include comparable sales data, agent appraisals, or pre-sale agreements to give lenders confidence in your assumptions.
Common Challenges in Ground-Up Projects
Ground Conditions
Unforeseen ground conditions are the most common cause of cost overruns on new build projects. Contamination, poor bearing capacity, high water tables, and unexpected obstructions can all add significant cost. Always commission a thorough ground investigation before committing to the site.
Utility Connections
Securing utility connections (water, electricity, gas, drainage) can be slow and expensive, particularly on sites without existing infrastructure. Factor in realistic timescales and costs for connection applications.
Section 106 and CIL
Planning obligations including **affordable housing contributions**, **Community Infrastructure Levy**, and **Section 106 payments** can significantly affect project viability. Ensure these are fully accounted for in your appraisal.
Construction Cost Inflation
Material and labour costs can increase during the build programme. Lenders want to see that your cost estimates include adequate contingency and that your building contract includes appropriate provisions for cost management.
Weather and Seasonal Factors
Ground-up construction is more weather-sensitive than internal works. Groundworks and external trades are particularly affected by winter weather. Build in seasonal allowances to your programme.
Working with a Development Finance Broker
Ground-up projects benefit significantly from working with a specialist broker who understands the nuances of new build lending. A good broker will:
- Identify the most suitable lenders for your project type, scale, and location
- Present your application in the format lenders prefer
- Negotiate competitive rates and terms
- Manage the drawdown process throughout the build
- Advise on structuring to optimise your facility
[Contact our team](/contact) to discuss your new build project and explore your financing options. You can also model your project economics using our [development finance calculator](/calculators/development).
Summary
Ground-up development finance is a powerful funding tool that enables new build projects from single houses to major residential and commercial schemes. Success requires thorough preparation: comprehensive site due diligence, QS-verified build costs, a credible programme, an experienced professional team, and a well-evidenced exit strategy.
By understanding what lenders look for and presenting a professional, well-prepared application, you can secure competitive funding and deliver profitable new build developments.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*