Specialist funding for ground-up construction, major refurbishment, and mixed-use development projects — structured with staged drawdowns aligned to your build programme. Our Worcester-based service connects you with specialist lenders who understand the Worcestershire property market.
Development finance is a specialist short-term lending product designed to fund property construction, conversion, and major refurbishment projects. Unlike conventional mortgages, development finance is structured to release funds in stages as the project progresses through defined construction milestones, ensuring that capital is available precisely when it is needed and that the lender's exposure is always matched against the value of work completed.
At Commercial Mortgage Broker, we arrange development finance for the full spectrum of property development activity: ground-up residential schemes from single houses to large multi-unit developments, commercial new builds including offices, retail, and industrial, mixed-use developments combining commercial and residential elements, conversion projects including barn conversions, chapel conversions, and office-to-residential permitted development schemes, and heavy refurbishment projects where the scope of works goes beyond what bridging lenders will fund.
The mechanics of development finance revolve around two core metrics: loan-to-cost (LTC) and loan-to-gross-development-value (LTGDV). LTC represents the total loan as a percentage of total project costs — land, construction, professional fees, and finance costs. LTGDV represents the total loan as a percentage of the completed scheme's market value. Standard senior development finance typically offers up to 65% to 70% of costs and 60% to 65% of GDV. For experienced developers with strong track records, stretched senior facilities can reach up to 85% to 90% of costs and up to 75% of GDV through a single loan facility, eliminating the need for separate mezzanine finance in many cases.
The loan is structured in two parts: the day-one advance, which typically covers the land purchase or a proportion of it, and the construction drawdown facility, which is released in tranches as the build progresses. Drawdowns are triggered by the completion of pre-agreed construction milestones — for example, foundations complete, superstructure complete, wind and watertight, first fix, second fix, and practical completion. Before each drawdown is released, a monitoring surveyor appointed by the lender inspects the site to verify that the stated works have been completed to an acceptable standard and that the remaining budget is sufficient to complete the project. This staged release mechanism protects both the lender and the developer by ensuring funds are used for their intended purpose.
Development finance lenders assess applications through a rigorous appraisal process. The development appraisal — a detailed financial model of the project — is the central document. It must demonstrate that the scheme is commercially viable, with a profit margin that provides adequate buffer for cost overruns, market fluctuations, and time delays. Most lenders require a minimum profit on cost of 20% to 25% or a profit on GDV of 15% to 20%. The appraisal must include realistic build cost estimates (ideally supported by a quantity surveyor's cost plan or competitive tender returns), achievable sales values backed by comparable evidence, a realistic construction programme, and a thorough assessment of all project costs including professional fees, planning obligations, finance costs, and a contingency provision of at least 5% to 10%.
Developer experience is a critical factor in securing development finance. Lenders want to see that the borrower has successfully completed comparable projects — similar in scale, complexity, and value — and can demonstrate a track record of delivering schemes on time and within budget. First-time developers face more limited options and will typically need to accept lower leverage, higher rates, and may be required to appoint an employer's agent or project manager approved by the lender. However, we regularly assist first-time developers in securing finance by identifying lenders with more flexible experience requirements and helping to present the applicant's transferable skills and professional team in the strongest possible light.
Build cost management is where many development projects succeed or fail. Lenders expect build costs to be substantiated — either through a fixed-price or design-and-build contract with a reputable contractor, or through a detailed cost plan from a qualified quantity surveyor. Cost overruns that exceed the contingency provision can leave developers needing to inject additional equity or face having their facility frozen. We advise all clients to build robust contingency provisions into their appraisals and to resist the temptation to understate costs in order to improve the apparent profitability of the scheme. Lenders are experienced at identifying optimistic appraisals and will either decline or impose more conservative assumptions.
The development finance application typically requires: a completed development appraisal, evidence of planning consent or permitted development rights, site surveys and investigation reports, build cost documentation, developer CV and track record evidence, company accounts and personal financial statements, details of the professional team including architect, structural engineer, contractor, and solicitor, and the proposed sales or letting strategy for the completed scheme. Processing time from application to first drawdown is typically four to eight weeks for straightforward schemes, though this can be longer for complex or large-scale projects.
Exit strategy is the final piece of the development finance puzzle. Lenders need to understand how the completed scheme will be disposed of or refinanced — whether through open-market sales, bulk sale to a housing association or investor, refinancing onto individual buy-to-let mortgages, or refinancing onto a single commercial mortgage for retained units. The exit must be supported by evidence: comparable sales data, agent recommendations, or letters of intent from buyers. A well-evidenced exit strategy gives lenders confidence and can result in better pricing and higher leverage.
For larger and more complex developments, the capital structure may involve multiple layers of finance. Senior debt covers the majority of costs at the lowest interest rate, while mezzanine or stretched senior facilities provide additional leverage. Understanding how these layers interact — including intercreditor arrangements, priority of repayment, and the total blended cost of capital — is essential to structuring the most efficient funding package. We model the full capital structure for each project and advise developers on the optimal combination of debt, equity, and any available grant funding.
Our approach to development finance draws directly on Matt Lenzie's experience in commercial and development banking. We understand the appraisal process from the lender's perspective, which means we can identify and address potential concerns before they become reasons for decline. We structure applications to present the scheme, the developer, and the numbers in the format and with the supporting evidence that credit committees expect to see. This preparation materially increases the probability of approval and the speed of the process. Our wider experience in corporate finance and investment advisory means we can also assist with more complex funding structures where traditional development finance alone is insufficient.
Market Insight: University driving student demand. Cathedral and heritage tourism. Strong local professional services.
Shrub Hill Quarter; city centre enhancement; riverside development
Good appetite for student accommodation and offices. Residential supported.
Development finance is released in stages aligned with your construction programme. The initial advance — typically on completion of the land purchase — covers the site acquisition and sometimes initial professional fees. Subsequent drawdowns are released as construction milestones are achieved: foundations, superstructure, wind and watertight, first fix, second fix, and practical completion. Before each drawdown, a monitoring surveyor appointed by the lender visits the site to verify that the claimed works have been completed satisfactorily and that the remaining budget is sufficient to finish the project. Once the monitoring surveyor's report is approved, the funds are released — typically within 3 to 5 working days. This staged mechanism ensures capital flows match the actual progress of the build.
Development finance costs fall into several categories. Interest is charged on drawn funds only — not the full facility — and is typically rolled up (added to the loan) and repaid at the end of the project from sales or refinance proceeds. Expect rates from 0.65% to 1.15% per month. An arrangement fee of 1.5% to 2% of the total facility is charged on completion. A monitoring surveyor is appointed at a cost of £750 to £1,500 per inspection, with inspections occurring at each drawdown stage. A valuation and development appraisal fee of £2,500 to £7,500+ covers the initial property and scheme assessment. Lender legal costs of £3,000 to £8,000+ cover the legal work on the facility. Some lenders also charge an exit fee of 1% to 1.5%. Your own professional costs — solicitor, QS cost plan, and broker fee — are additional.
Yes, although your options will be more limited and the terms less favourable than for experienced developers. Many lenders will consider first-time developers if you can demonstrate relevant transferable skills — for example, a background in construction, architecture, surveying, or project management — and have assembled a competent professional team. You may need to accept lower leverage (typically 55-60% of costs versus 65-70% for experienced developers), appoint an employer's agent or project manager approved by the lender, and provide a more detailed business plan. Some lenders have specific first-time developer programmes with structured support. Starting with a smaller, simpler project and building a track record is the most effective route to accessing better terms on future developments.
Most development finance lenders require a minimum profit on cost of 20% to 25%, or equivalently a profit on GDV of approximately 15% to 20%. These thresholds provide a buffer for cost overruns, sales price reductions, and time delays. Lenders will stress-test your development appraisal by increasing build costs by 5% to 10% and reducing sales values by 5% to 10% — the scheme must still demonstrate viability under these stressed assumptions. Projects with thinner margins will either be declined or offered lower leverage, requiring the developer to contribute more equity. We always recommend building realistic contingency into the appraisal rather than presenting optimistic numbers, as experienced lenders will see through unrealistic assumptions and it can undermine credibility.
Stretched senior finance is a single development loan facility that provides higher leverage than standard senior lending — typically up to 85% to 90% of total project costs and up to 75% of GDV. It effectively combines what would traditionally be separate senior and mezzanine facilities into one loan, simplifying the capital stack and often reducing the overall cost of finance. Stretched senior is available to experienced developers with proven track records, typically requiring completion of at least 3 to 5 comparable projects. The advantages include dealing with a single lender, lower total arrangement fees than dual facilities, simplified legal documentation, and often a competitive blended interest rate. The minimum project size and profit margin requirements are typically higher than for standard senior lending.
From initial application to first drawdown, development finance typically takes 4 to 8 weeks for straightforward schemes with all documentation in order. More complex projects — large multi-unit schemes, sites with planning conditions to be discharged, or applications requiring additional due diligence — may take 8 to 12 weeks. The main factors affecting timeline are the completeness of documentation provided at application, the time required for the development valuation (typically 2-3 weeks), the complexity of legal work including review of planning consent and building contracts, and the lender's credit committee schedule. Starting the process early and having all documentation prepared before submitting the application is the most effective way to minimise the timeline.
Cost overruns and programme delays are common in development, which is why lenders require contingency provisions in the appraisal. If costs exceed budget within the contingency, the lender will usually continue to fund drawdowns. If costs exceed the contingency, the developer will typically need to inject additional equity to cover the shortfall, as the lender's total exposure cannot increase beyond the approved facility. For time overruns, most development finance facilities include a provision for extension — typically 3 to 6 months — at an additional cost. Communicating early with your lender and monitoring surveyor if issues arise is critical. We maintain ongoing contact with lenders throughout our clients' projects and can intervene early to negotiate extensions or restructured terms if the project encounters difficulties.
Yes, most development finance facilities include a day-one advance to fund or contribute to the land purchase. Typically, the lender will advance 50% to 65% of the site purchase price on day one, with the developer contributing the balance from their own funds. For experienced developers with strong track records, some lenders will advance up to 100% of the land cost, provided the overall facility remains within the maximum LTC and LTGDV parameters. Where a developer has owned the site for some time and its value has increased, lenders may advance against the current market value rather than the original purchase price, effectively releasing equity.
Lenders expect a competent professional team to be in place before approving development finance. At a minimum, this includes: an architect who has prepared the scheme design and obtained planning consent, a structural engineer for any structural works, a contractor or building firm (ideally appointed on a fixed-price or design-and-build contract), a solicitor experienced in development transactions, and for larger schemes, a quantity surveyor who has prepared a detailed cost plan. Some lenders also require a project manager or employer's agent, particularly for first-time developers. The quality and track record of your professional team is a factor in the lending decision — lenders take comfort from experienced architects, reputable contractors, and solicitors who specialise in development work.
The distinction relates to the nature and extent of works. Heavy refurbishment bridging finance covers structural works, extensions, and reconfiguration of an existing building where the fundamental structure is retained. Development finance covers ground-up construction, demolition and rebuild, and more extensive conversion projects. In practice, the line between heavy refurbishment and development is not always clear, and lenders differ in their categorisation. Development finance typically involves more detailed appraisal, monitoring, and documentation requirements, but may offer higher overall leverage and longer terms. We assess each project individually and advise whether development finance, heavy refurbishment bridging, or a hybrid approach offers the best fit.
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