Development Finance

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.

Experience requirements vary by lender and project complexity. For smaller schemes (1-4 units), some lenders accept first-time developers with strong professional teams. Larger projects typically require a demonstrable track record of delivering similar schemes. Consider partnering with experienced contractors or starting with simpler refurbishment projects if you're new to development. We regularly help first-time developers by presenting transferable skills and assembling strong professional teams.

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. Some lenders offer higher leverage for experienced developers with strong track records, while first-timers may need more equity. The equity must come from personal resources -- lenders do not accept borrowed deposits.

Build costs are released in arrears following verification by an independent monitoring surveyor. The process: complete a stage of works, request drawdown, QS inspects and certifies progress, lender releases funds (usually 5-7 working days). Most lenders operate monthly drawdown cycles. Funds are released against pre-agreed milestones such as foundations, superstructure, wind and watertight, first fix, second fix, and practical completion.

Lenders typically require 5-10% contingency in your cost plan. If costs exceed this, additional equity is usually required first. Some lenders may increase facilities if headroom exists. For time overruns, most loans include extension options (typically 3-6 months) for additional fees. Communicate early with your lender if you foresee issues -- we maintain ongoing contact with lenders throughout our clients' projects.

Most development finance lenders require a minimum profit on cost of 20% to 25%, or a profit on GDV of 15% to 20%. These thresholds provide a buffer for cost overruns and market fluctuations. Lenders will stress-test your appraisal by increasing costs and reducing sales values by 5-10% -- the scheme must still show viability under these stressed assumptions. Projects with thinner margins may be offered lower leverage.

Yes, most development finance facilities include a day-one advance for land acquisition. Typically, lenders advance 50-65% of the site purchase price on day one. For experienced developers, some lenders advance up to 100% of land cost provided the overall facility stays within maximum LTC and LTGDV parameters. Where a developer has owned a site and its value has increased, lenders may advance against the current market value rather than original purchase price.