What Is Property Development Finance?
Development finance is short-term, asset-secured lending against a building that hasn’t been built yet. The lender underwrites the projected end value of the finished scheme, the gross development value, or GDV, and releases the money in tranches as the build progresses.
That staged structure is what separates it from every other property loan. You draw down against work completed, the interest rolls up rather than falling due monthly, and the whole facility is repaid in one go when you sell or refinance.
It is the wrong product in two common cases. If the asset already exists and produces income, a commercial mortgage covers that. If you need a single quick advance to buy a property in its current condition, that is a job for bridging finance.
Development finance funds ground-up new builds, conversions and permitted-development projects, heavy refurbishment where the cost of works exceeds the current market value, and mixed-use or commercial schemes. The common thread is that you are creating the asset, not buying it.
Most borrowers in this market are SME developers with two or more completed schemes behind them. First-timers can get in, on restricted terms we set out under What Lenders Check Before Approval below.
When you draw down against completed work, the interest rolls up instead of falling due each month, so your cash flow holds through the build.
| Feature | Typical position |
|---|---|
| Loan term | 9-24 months, matched to the build programme |
| Typical LTC / LTGDV | Up to 85% LTC / 60-70% LTGDV senior; 90-95% LTC / 75-80% LTGDV with mezzanine blended in |
| Security | First legal charge over the site and works, sometimes a second charge behind senior for mezzanine |
| Interest treatment | Rolled up and compounded, paid on exit alongside the principal |
| Drawdown method | Staged, released against monitoring surveyor sign-off every 4-6 weeks |
| Repayment route | Sale of completed units, refinance onto a term facility, or a development exit bridge |
| Best suited to | SME developers with 2+ completed schemes, full planning permission, and a defined exit |
| Main risk | Cost overrun or a soft sales market eroding the exit before the facility term expires |
| Verified July 2026. | |
How Development Finance Works
A development facility moves through five stages, from the signed facility letter to the day you repay. The stage that trips first-time applicants is interest.
It accrues on the drawn balance and compounds across the term, so the real cost is always higher than a flat headline-rate calculation suggests.
When your surveyor is late signing off a drawdown, your contractor keeps chasing you for the stage payment while the build stalls.
- Facility agreed. Your lender issues a facility letter setting out the gross loan, LTC/LTGDV caps, rate, and conditions precedent, once valuation, planning, and the cost plan have been underwritten.
- Initial drawdown. Your lender releases the day-one advance, restricted to roughly 60-65% of land value, not the purchase price, so you cover the equity gap on day one out of cash.
- Staged drawdowns, monitored. Build cost tranches are drawn against the monitoring surveyor’s sign-off every 4-6 weeks, with a 5-10% retention held back per drawdown until practical completion clears snagging.
- Interest roll-up during build. Interest accrues on the drawn balance and compounds over the term, because the scheme produces no income during construction. A flat headline-rate x months x loan calculation understates the real cost on an 18-month facility.
- Exit. You repay the facility in full at sale, refinance onto a term mortgage, or roll onto a cheaper development exit bridge if units haven’t sold by practical completion, see Stretched Senior, Mezzanine and Development Exit Finance below.
We cover the costs and fees mechanics in more depth on development finance costs explained and development finance fees explained.
Property Development Finance Costs
What you pay reflects the Bank of England base rate (4.25% as of mid-2026) plus a risk margin that varies by leverage, scheme complexity, your experience, and lender tier.
If you’re an experienced developer approaching a Tier 1 challenger bank, senior debt clears at roughly 7.5-10% all-in per year on schemes up to 65-70% LTGDV.
That figure is verified against Construction Capital’s and Fox Davidson’s July 2026 rate guides, and against Shawbrook and Aldermore’s own published FAQ and tariff pages.
On a monthly-equivalent basis, expect roughly 0.6-0.85% per month.
Stretched senior, blending senior and mezzanine into one facility at 70-75% LTGDV, prices at roughly 9.5-12.5% all-in per year.
Mezzanine sits considerably above senior, pricing at 12-18% per annum in 2026, reflecting its second-charge risk position behind your senior lender. On a 24-month scheme, the all-in cost of mezzanine including fees can reach 18-25% on a money-multiple basis.
Read your term sheet on the exit fee basis carefully. If your exit fee is calculated on the GDV rather than the loan, it can be three to five times higher in absolute cash terms, because the GDV is meaningfully larger than the loan on most schemes.
When you settle the facility at exit, the rolled-up interest and every fee land together, not spread across your monthly cash flow.
| Cost item | Typical range (2026) |
|---|---|
| Interest rate, senior | 0.6-0.85% per month (~7.5-10% pa all-in) |
| Interest rate, stretched senior | ~9.5-12.5% pa all-in |
| Interest rate, mezzanine | 12-18% pa |
| Arrangement fee | 1-2% of gross loan (senior); 2-3% of facility (mezzanine) |
| Monitoring surveyor fee | £750-£1,500 per site visit |
| Valuation fee (RICS Red Book) | £2,500-£7,500 depending on scheme complexity |
| Legal fees | £3,000-£12,000, lender and borrower counsel both billed to you |
| Exit fee | 1-2% of loan or GDV depending on lender (senior); 1-2.5% (mezzanine) |
| Broker fee | Up to 1% of gross loan, payable on completion |
| Extension fee | Typically 0.5-1% of the outstanding facility per extension period, lender-specific |
| Verified July 2026. | |
On a mid-sized scheme, the all-in cost of your debt routinely sits 2-3 percentage points above the monthly headline rate once fees and rolled-up interest are factored in honestly.
We make this distinction visible because we see appraisals submitted on a flat-rate calculation that lose you 3-4% of margin once the real cost lands.
Development Finance Example: £1m GDV Scheme
On a £1m GDV scheme costing £650k, a 65% LTGDV senior facility gives you a £650k gross loan cap. Roughly £592k of that is available to deploy once the arrangement fee and rolled-up interest come out. You still need around £130k of your own cash on day one.
The table below runs the full appraisal, checked against current 2026 lender quote sheets, the way an underwriter would read it.
| Line item | Figure |
|---|---|
| Gross development value (GDV) | £1,000,000 |
| Land cost | £300,000 |
| Build cost | £350,000 |
| Total development cost | £650,000 |
| Senior facility (65% LTGDV) | £650,000 gross loan cap |
| Arrangement fee (2% of gross loan) | £13,000 |
| Interest roll-up (18 months, staged drawn balance) | ~£45,000 |
| Net loan available for deployment | £592,000 |
| Day-one advance (~60% of land value) | ~£180,000 |
| Developer cash needed day one (equity gap, SDLT, legals) | ~£130,000 |
| Remaining build tranches (5-8 stages, MS sign-off) | ~£412,000 |
| Verified July 2026. | |
That day-one equity gap is the line most first appraisals get wrong. “Needing equity” is not a percentage on a spreadsheet; on this scheme it is roughly £130k of your own cash committed before the first brick is laid, covering the land shortfall, SDLT, and legals.
For a deeper breakdown of how GDV gets calculated and stress-tested by a Red Book valuer, we point you to gross development value explained.
When you pay the SDLT and legals on the land, that cash leaves your account before the first drawdown lands.
What Lenders Check Before Approval
Two things clear or kill most applications: a defined, evidenced exit, and a developer CV that matches the scheme scale. Everything else, planning, the cost plan, your contractor’s balance sheet, is a package the lender expects near-complete on first submission.
The checks below run in the order they usually surface at credit committee.
Professional team and cost plan. Your QS-prepared schedule of works is the lender’s reference document for the build cost plan, and needs a contingency, usually 5-10% of build costs.
For larger schemes a formal JCT contract with a vetted main contractor is non-negotiable, and your architect, structural engineer, and project manager all need adequate professional indemnity cover.
We see roughly one in five files we review slip two weeks because your cost plan carries stale unit prices the monitoring surveyor catches at week three.
Track record. Mainstream development lenders expect a developer CV showing two or more completed schemes of comparable scale and asset class. Comparable means similar: three completed 15-unit residential schemes does not equal one 50-unit scheme on the underwriter’s file.
Exit strategy and pre-sales. Your exit strategy is the second hardest gate after planning. You need a defined route: open-market sale supported by comparable sales evidence and a marketing plan, or refinance with an Agreement in Principle from your exit lender already in hand.
“We expect to sell the units” isn’t an exit strategy that survives underwriting.
Planning status. Full detailed planning permission must be granted and unappealed before you can draw the day-one advance. Outline planning, planning in principle, and applications still in determination are all insufficient for mainstream development drawdown.
Pre-commencement conditions need to be materially discharged, or have a clear path to discharge, before construction starts.
First-time developers. Mainstream Tier 1 banks (Aldermore, Shawbrook, Close Brothers, OakNorth) require a minimum of two successful completions of comparable schemes, so first-timers are off the table at this tier.
Roma Finance, Hilltop Credit Partners, and P2P platforms like Blend Network actively underwrite inexperienced borrowers under stricter conditions: leverage capped at 60-65% LTGDV against 70-75% for experienced developers, and scale restricted to 1-4 residential units.
You’ll also need a mandatory experienced main contractor on a fixed-price JCT plus an experienced project manager, and personal guarantees are universal at this level.
The realistic route into the market without a CV is to partner with an experienced developer for your first scheme and build the track record before approaching mainstream lenders for scheme two.
Credit history. Lenders read your contractor’s filed accounts as closely as your own. A thin balance sheet, for example working capital that can’t survive a cash-flow shock during the build, kills the JCT regardless of your own strength as a borrower.
A personal guarantee from a developer with a weak credit file narrows the lender panel sharply.
Residential, commercial and mixed-use schemes. Residential is the most liquid asset class and carries the highest leverage, up to 70-75% LTGDV at stretched senior level, with the lowest rates.
Speculative commercial development faces sharper scrutiny for tenant absorption risk, so lenders cap LTGDV at 55-60% unless meaningful pre-lets are already signed.
Mixed-use schemes are funded at residential leverage provided the commercial element stays below 30-40% of GDV. Heavy refurbishment and PDR conversions clear a few points higher LTGDV than new build at the same lender, because the structural superstructure already exists.
Five recurring failures account for most declines. Optimistic GDV: borrowers project end values from comparable evidence chosen to support the scheme rather than from the market as a Red Book valuer would assess it, and a 5-10% lower valuer figure can push LTGDV outside lender criteria. Weak exit: a vague “sell or refinance” intent without absorption rate evidence, comparable sales data, or a mortgage AIP fails at credit committee. Insufficient developer experience for the scheme scale. Unproven contractors, where filed accounts show a balance sheet that can’t survive a cash-flow shock. And Section 106 or CIL contributions not factored into cash flow, since lenders deduct these from the day-one advance rather than treat them as a later-stage cost, which catches first-time developers routinely.
How to Access Development Finance
The UK development finance market is broker-led, and the proportion is growing. NACFB-tracked broker-led SME finance volume hit £33 billion in 2025, up 25% year-on-year, roughly two-thirds of total broker-led SME finance.
Broker route. Specialist debt funds and challenger development lenders don’t run retail distribution networks the way a high street bank does.
They outsource the front-end work, KYC, application packaging, structuring of the LTC and LTGDV, scheme appraisal, exit verification, to commercial finance brokers, who deliver an “oven-ready” proposition to the lender’s credit committee.
Your broker fee is usually up to 1% of the gross loan, payable on completion, and the lender pays a separate procuration fee to the broker, transparently disclosed in your facility paperwork.
Direct lender route. Direct application makes sense in a narrow set of cases: you’re a corporate developer with an in-house treasury function, you already hold a revolving credit relationship at a clearing bank, or you’re a repeat borrower already inside a specific lender’s panel.
For everyone else, we read the broker route as the better path. The matching of scheme structure to lender appetite that a strong broker does in week one is the difference between a clean approval at the right rate and three weeks lost to the wrong lender.
Indicative terms. Realistic timelines from first enquiry to day-one advance run 4-8 weeks on a clean file, 3 weeks if genuinely lined up in advance, and up to 12 weeks where mezzanine structuring or unusual security is involved.
Heads of terms. With a complete submission (appraisal, developer CV, planning documents, cost plan), lenders issue a Decision in Principle or Heads of Terms within 48-72 hours of you applying.
Due diligence. Weeks two to four are the valuation phase: your lender instructs an independent RICS surveyor for a Red Book valuation of the site and projected GDV, while an initial monitoring surveyor reviews the cost plan for buildability.
Weeks four to six cover legal due diligence, title checks, planning condition validation, and drafting the facility agreement and security documentation.
Facility letter. By weeks six to eight you’re into the final credit decision and conditions precedent.
First drawdown. Once your lender’s first charge is registered at HM Land Registry and all conditions are satisfied, the day-one advance is released.
We see borrowers exchange contracts on land assuming dev finance funds in two weeks. It doesn’t. Build the realistic timeline into your chain or the deal will fall apart on the seller’s patience, not your lender’s decision.
When your broker packages the file, you are often chasing your QS for an updated cost plan while the lender waits on the valuation.
Who Provides Development Finance in the UK
The UK development finance market in 2026 splits cleanly into distinct lender tiers, each with a different risk appetite, cost of funds, and operating model. Knowing which tier your scheme fits saves weeks at the broker stage.
| Lender type | Best suited to | Speed | Flexibility | Cost | Main limitation |
|---|---|---|---|---|---|
| Challenger banks (Aldermore, Shawbrook, Close Brothers, Paragon, United Trust Bank, OakNorth, Cambridge & Counties) | Experienced developers with planning, equity, and a clean exit | Slower, rigorous underwriting | Low, strict covenants | Lowest, ~7.5-10% pa all-in | Won’t entertain speculative planning plays or first-time developers |
| Specialist development lenders (Octopus Real Estate, Maslow Capital, Hilltop Credit Partners, Roma Finance, Interbay, Pluto Finance) | Stretched senior, mixed-use or unusual scheme structures | Faster execution | Higher leverage, more flexible on borrower profile | Slightly above Tier 1 | Pricing premium over challenger banks |
| P2P / institutional platforms (Blend Network, CapitalRise, Assetz Capital) | Tertiary-market schemes, sometimes first-timers with strong professional teams | Moderate | Accommodating on borrower profile | Moderate to high | Smaller facility sizes typically |
| Mezzanine providers (Pluto Finance, Maslow Capital mezz line, ICG, family offices) | Developers with the scheme but not the equity | Fast, layered onto existing senior | High, second-charge position | 12-18% pa | Second-charge risk, priced accordingly |
| High-street banks (NatWest, Lloyds, Barclays) | Top-tier corporate developers on £20m-plus schemes | Slow | Low | Competitive on large scale only | Largely retreated from SME mid-market development |
| Verified July 2026. | |||||
A note on Allica Bank, since the question comes up. Allica explicitly doesn’t offer ground-up development finance in 2026.
Their property products are commercial investment mortgages, bridging (after the Tuscan Capital acquisition), and a Bridge-to-Term facility for already-built refurbishment-to-investment cases.
If you bank with Allica for commercial mortgages or business loans, don’t assume that translates into a development finance offer. Their main review and commercial mortgages review cover what they do underwrite.
We’ve published dedicated reviews on the most-used names: Aldermore, Shawbrook, Close Brothers, Octopus Real Estate, Maslow Capital, Hilltop Credit Partners, Roma Finance, Interbay, and Blend Network, plus a side-by-side comparison at Shawbrook vs Aldermore.
For the lender ranking on the mainstream development side, our roundup at best development finance lenders UK is the next stop.
Drawdowns, Monitoring and Repayment
Your lender’s eyes on the build are the independent monitoring surveyor, usually a chartered RICS surveyor, appointed by the lender and paid for by you.
- MS fees run £750-£1,500 per site visit, with the initial appraisal and monthly drawdown visits both invoiced separately to you.
- The initial appraisal report signs off your QS cost plan as sufficient to reach practical completion. If the cost plan is light, the lender will push back on the gross loan or require more equity before facility agreement.
- Once construction is live, drawdowns happen on a four to six-week cycle: you submit a request supported by contractor invoices, certified valuation of works in place, retention schedule, and Health & Safety updates.
- Your MS visits the site, verifies that claimed materials are actually installed, not just delivered, and issues a certificate. Materials on site but not installed are generally not funded.
- A 5-10% retention is held back per drawdown until practical completion clears snagging, which binds your contractor financially to finish the job, including the parts that get done last.
We see this timing mismatch catch first-time developers more than any other operational rule on a live build.
Your contractor invoices for materials that are on site but not yet installed, your MS certifies only what’s actually in the ground, and you bridge the gap from working capital that month.
When you file each drawdown request, your surveyor verifies installed materials before the tranche releases.
On a Friday afternoon the certificate is signed but you are still waiting on the drawdown, and your contractor wants the stage payment now.
You repay the facility in full at exit, from the sale of completed units, a refinance onto a long-term commercial or buy-to-let mortgage, or a roll onto a development exit bridge if units haven’t sold by practical completion. Rolled-up interest and the principal are settled together at this point, not amortised through the build.
Stretched Senior, Mezzanine and Development Exit Finance
Three structures cover the two moments a plain senior facility leaves you short. Stretched senior and mezzanine both raise leverage when you cannot meet the cash-equity floor a Tier 1 lender demands.
Development exit finance does a different job: it refinances you off the expensive senior facility if units haven’t sold by practical completion. The table sets out cost and risk for each.
| Structure | Purpose | Stage used | Typical borrower | Cost (2026) | Leverage impact | Main risk |
|---|---|---|---|---|---|---|
| Stretched senior | Blend senior debt and mezzanine into one facility from one lender | Facility agreement, throughout build | Developer short of the cash-equity floor | ~9.5-12.5% pa all-in | Takes total leverage to 70-75% LTGDV / 90% LTC | Single legal agreement, but higher blended cost than pure senior |
| Pure mezzanine | Second-charge layer behind senior, governed by an intercreditor agreement | Alongside senior, from facility agreement | Developer has the scheme but not the equity | 12-18% pa | Stretches total leverage to 75-80% LTGDV / 90-95% LTC | Second-charge risk position, elevated capital loss if scheme underperforms |
| Development exit finance | Refinance off the expensive senior facility once units haven’t sold at practical completion | Practical completion, sales window | Developer needing time to sell at full value, not under fire-sale pressure | ~0.55-0.75% per month | Reduces cost once construction risk has gone | Facility term (typically 9-18 months) still needs a credible sales plan |
| Verified July 2026. | ||||||
Active providers of stretched senior and mezzanine include Hilltop Credit Partners, Blend Network, Pluto Finance, Maslow Capital’s mezz line, ICG, and family offices.
Active providers of development exit bridging include the specialist bridging arms of Octopus Real Estate, Roma Finance, and MT Finance, plus dedicated exit funds.
We see stretched senior and mezzanine used most when you have the scheme but not the equity, and the marginal cost of capital matters less than getting the deal to drawdown.
For the structural rationale behind exit bridging, see development exit bridging explained, and for ground-up mechanics see ground-up development finance.
When Development Finance Is and Is Not Suitable
In the schemes we review, the exit column is where most borderline cases fall down. A vague sale-or-refinance intent, with no comparable evidence or AIP behind it, is the single most common reason a promising scheme never reaches drawdown.
| Good fit | Poor fit |
|---|---|
| You hold full planning permission and land ownership or a formal option | You only have outline planning or planning still in determination |
| You have 2+ comparable completed schemes on your CV | You’re a first-time developer targeting a large or complex scheme |
| You have 10-15% cash equity of total project costs available | You have little to no cash equity and no partner developer |
| You have a defined, evidence-based exit (comparable sales or AIP) | Your exit plan is “we’ll sell or refinance” with no supporting evidence |
| Your contractor has a fixed-price JCT and a sound balance sheet | Your contractor is unproven or thinly capitalised |
| You need staged capital that tracks a build programme | You need a single lump-sum advance against an existing asset, a commercial mortgage or bridge fits better |
| Verified July 2026. | |
Frequently Asked Questions
What is the difference between LTC and LTGDV in development finance?
LTC (Loan-to-Cost) expresses your loan as a percentage of total project costs, land, build, professional fees, and finance costs. LTGDV (Loan-to-Gross-Development-Value) expresses your loan as a percentage of the projected end value of the scheme. Both caps apply simultaneously: your actual loan is the lower of the two results. An 85% LTC on a £2m total cost gives £1.7m. A 65% LTGDV on a £3m GDV gives £1.95m. The lender writes £1.7m, the lower number.
Do you need full planning permission for development finance?
Yes, in virtually all cases for mainstream development lenders. You need full detailed planning permission before day-one drawdown. Outline permission, planning in principle, or applications still in determination are insufficient. Land purchased without planning needs bridging finance to cover acquisition while planning is pursued, with development finance replacing it once permission is granted. We cover the bridging-to-development handover on our bridging hub.
Can a first-time developer get development finance?
Yes, but your options are narrow and the terms are penalised. Roma Finance, Hilltop Credit Partners, and Blend Network are the most accessible routes for first-timers, typically capped at 60-65% LTGDV and restricted to smaller schemes (1-4 units). Lenders demand an experienced contractor on a fixed-price JCT and an experienced project manager from you. Personal guarantees are universal. The most direct route to mainstream lender access is to partner with an experienced developer for your first scheme to build the track record.
How is interest charged on development finance?
Interest is typically rolled up, it accrues on your drawn balance during the build period and is paid in full at exit (sale or refinance) along with the principal. This preserves your cash flow during construction, when the scheme produces no income. Rolled-up interest compounds over the term, so the total interest cost is meaningfully higher than a flat headline-rate-times-months calculation suggests. Build the compounded figure into your appraisal at the outset.
What does development finance actually cost in 2026?
Senior debt from challenger banks clears at roughly 7.5-10% all-in per year for experienced developers in 2026, verified against current lender and broker rate guides. Stretched senior runs 9.5-12.5% pa, and mezzanine sits at 12-18% pa. Add 1-2% arrangement fee on the gross loan (2-3% for mezzanine), 1-2% exit fee (calculated on either the loan or the GDV depending on lender), plus monitoring surveyor visits at £750-£1,500 each, valuation £2,500-£7,500, and legal £3,000-£12,000. Detailed cost breakdown on development finance costs explained.
How long does a development finance application take?
Realistic 4-8 weeks from your first enquiry to day-one advance on a clean file. Three weeks is achievable if you come in with a fully prepared submission and a cooperative valuer. Twelve weeks is realistic for complex mezzanine structures or unusual security. Don’t exchange contracts on land assuming dev finance funds in two weeks, it won’t.
Methodology and Disclosure
How we reviewed this
What we covered. This guide explains how development finance works for UK property developers, drawing on FCA guidance, Bank of England publications, and lender documentation. We do not draw on comparison site summaries or aggregator data.
Data sources. Rates and lender criteria were checked against primary sources across May-July 2026, including Aldermore and Shawbrook’s own FAQ and tariff pages, NACFB’s Intermediary Market Outlook 2025/2026, and Building Safety Regulator updates.
We also ran a July 2026 verification pass against current specialist-lender rate guides. We do not cite comparison site summaries or affiliate aggregator data.
Update cadence. We re-verify this page at least monthly, and whenever a provider changes pricing, eligibility, or terms. The verification date on the page reflects the most recent full review. Some links on this page are affiliate links, see our editorial policy.