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 (GDV), and releases the money in tranches as the build progresses.
The staged drawdown is the defining feature of development finance. You receive money against completed work, while interest normally rolls up instead of falling due each month. That preserves cash during construction, but the loan and accumulated interest must be repaid together when you sell or refinance.
If the building already stands and earns rent, you want a commercial mortgage, not this. If you need one lump sum quickly to buy a property as it is, that is bridging. Development finance only makes sense where the value you are borrowing against has to be built before it exists.
Ground-up new builds, conversions and permitted-development projects, heavy refurbishment where the works cost more than the property is currently worth, and mixed-use or commercial schemes all qualify. In each case you are spending money to make something worth more than the site you started with, which is what the lender is underwriting.
Most borrowers in this market are SME developers with two or more completed schemes behind them. A first-timer can still borrow, but on a smaller scheme, at lower leverage, and with an experienced contractor and project manager attached to the application.
| Feature | Typical position |
|---|---|
| Loan term | 9-24 months, matched to the build programme |
| Loan to cost (LTC) and loan to gross development value (LTGDV) | Up to 85% LTC / 60-70% LTGDV senior; up to 85-90% LTGDV with mezzanine |
| 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 October 2026. | |
How Development Finance Works
Two mechanics catch developers out, and both cost money rather than just accuracy. Interest accrues on whatever you have drawn so far and compounds across the term, so multiplying the headline rate by the number of months understates what you will actually repay. Every release after the first depends on the monitoring surveyor signing a certificate, and if that certificate is late, you have a contractor expecting payment for work the lender has not yet agreed to fund.
- 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
Bank Rate was 3.75% when we checked it on 5 October 2026, but what you pay turns far more on how much you are borrowing against the scheme, how complicated it is, and how many of these you have done before. Construction Capital, a UK broker, publishes development loan rates from 6.5% a year at up to 65-70% loan to gross development value (LTGDV), and puts 2026 senior rates for experienced developers on mainstream residential schemes at 6.5% to 9.5% a year. The more you borrow against the end value, the higher the rate, and none of these figures carries the arrangement fee, the valuation or the legal work.
Quoted monthly, senior pricing sits around 0.75-1.0%. Construction Capital quotes 0.75-1.0%+ a month on the development facility, while Alternative Bridging Corporation’s first-charge pricing works out at about 0.85-0.94% a month. Stretched senior is priced deal by deal between senior and mezzanine rather than against a published range. Mezzanine starts at about 12% a year and typically costs 12-15%, reflecting the greater risk of sitting behind the senior lender.
The exit fee is the line worth finding in your term sheet first, because two lenders quoting the same percentage can charge very different amounts. A 1% exit fee on the loan is one number; the same 1% charged on the gross development value is three to five times larger in cash on most schemes, since the end value is always well above what you borrowed. All of it falls due in one go when you settle the facility, alongside the interest that has been accumulating since day one.
| Cost item | Typical range (2026) |
|---|---|
| Interest rate, senior | 6.5-9.5% a year for experienced developers; 0.75-1.0% a month on other quotes |
| Interest rate, stretched senior | Quoted deal by deal, between senior and mezzanine pricing |
| Interest rate, mezzanine | From about 12% a year, typically 12-15% |
| Arrangement fee | 1-2% of gross loan (senior); 2-3% of facility (mezzanine) |
| Monitoring surveyor fee | £500-£1,500 per site visit |
| Valuation fee (Red Book valuation by a chartered surveyor) | £2,000-£10,000 depending on scheme complexity |
| Legal fees | Quoted per deal; budget for both lender and borrower legal work |
| 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 | Quoted per deal and payable if the facility term has to be extended |
| Verified October 2026. | |
The monthly rate is only one part of the finance cost. Arrangement fees, valuation and monitoring charges, legal work and rolled-up interest all reduce the money available to the scheme, so your appraisal needs the full term-sheet cost rather than a headline-rate calculation.
Development Finance Example: £1m GDV Scheme
Take a £1m GDV scheme with £650,000 of total costs. Two caps apply at once: 85% of cost gives £552,500, and 65% of end value gives £650,000. The lender lends against whichever is lower, so the gross loan is £552,500, and on this scheme it is the cost cap rather than the value cap that binds. We modelled the figures below at 0.85% a month simple interest over 18 months, with the build funding drawn in stages rather than all on day one.
| Line item | Figure |
|---|---|
| Gross development value (GDV) | £1,000,000 |
| Land cost | £300,000 |
| Build cost | £350,000 |
| Total development cost | £650,000 |
| 85% loan-to-cost cap | £552,500 |
| 65% loan-to-GDV cap | £650,000 |
| Gross loan, using the lower cap | £552,500 |
| Arrangement fee (2% of gross loan) | £11,050 |
| Interest assumption | 0.85% per month, simple, over 18 months with staged drawdowns |
| Interest roll-up | ~£51,000 |
| Net loan available for deployment | ~£490,000 |
| Day-one advance (60% of land value) | £180,000 |
| Day-one land-purchase gap | £120,000 |
| Remaining build tranches | ~£310,000 |
| Build cost not covered by the tranches | ~£40,000 |
| Developer cash needed day one, including Stamp Duty Land Tax and legals | ~£130,000 |
| Developer cash across the scheme, before Stamp Duty Land Tax and legals | ~£160,000 |
| Verified October 2026. | |
The gross facility is not money you can put towards the land. Against a £300,000 site, the day-one advance is £180,000, so about £130,000 of your own cash goes out before the first brick is laid: the £120,000 land shortfall, plus Stamp Duty Land Tax and the legal work on the purchase.
The build tranches leave about £40,000 of build cost to you, taking your cash across the scheme to about £160,000 before Stamp Duty Land Tax 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.
What Lenders Check Before Approval
Your exit and your track record decide most applications. Everything else, planning, the cost plan, your contractor’s accounts, has to arrive as one coherent file, and a healthy projected margin will not carry a weak submission past a credit committee.
The lender assesses the scheme, the people delivering it and the route by which the debt will be repaid. A weakness in any one of those areas can stop the application.
Professional team and cost plan. The lender works from the schedule of works your quantity surveyor prepares, and expects a contingency inside it, usually 5% to 10% of build costs. On larger schemes a formal Joint Contracts Tribunal (JCT) contract with a vetted main contractor is not negotiable, and your architect, structural engineer and project manager all need professional indemnity cover the lender can see. Price the works at current rates rather than last year’s: the monitoring surveyor reads the cost plan, and challenging it mid-application costs you weeks you have already spent.
Track record. Mainstream development lenders expect a developer CV showing two or more completed schemes of similar size and type. Scale does not add up the way you might hope: three finished 15-unit residential schemes will not get you underwritten for a 50-unit site, because the underwriter is looking for a scheme like the one in front of them.
Exit strategy and pre-sales. If you plan to sell on the open market, bring comparable sales evidence and a marketing plan; if you plan to refinance, bring an Agreement in Principle from the lender you intend to refinance with. “We expect to sell the units” tells the credit team nothing about price, demand or timing, and an exit they cannot test is an exit they will not lend against.
Planning status. You need full detailed planning permission, granted and past its appeal window, before any lender will release the day-one advance. Outline permission will not do, nor will planning in principle, nor an application still sitting with the council. Pre-commencement conditions also need to be discharged, or clearly on course to be, before anyone starts work on site.
First-time developers. Shawbrook and Aldermore both say their development finance is for experienced developers, and neither publishes the number of completed schemes it wants to see, which in practice shuts out most people doing their first one. Mint Property Finance says the opposite in plain terms: it accepts first-time developers on schemes of up to 4 houses or 6 flats, at up to 65% LTGDV.
You will also need an experienced main contractor on a fixed-price JCT and an experienced project manager, and expect to sign a personal guarantee: every lender at this end of the market asks for one. If you have no CV at all, the route in is to do your first scheme alongside a developer who has, then take the completed project to a mainstream lender for your second.
Credit history. Lenders read your contractor’s filed accounts as closely as your own. A fixed-price contract is worth less than it looks if the contractor has no working capital behind it, because a single late payment or materials dispute can stop your site, and the lender knows it. Your own file matters because the guarantee rests on it: county court judgments and recent defaults narrow your choice of lender well before price comes into the conversation.
Residential, commercial and mixed-use schemes. Houses and flats sell fastest, so they attract the highest borrowing, up to 70% to 75% LTGDV with stretched senior, at the lowest rates. Build commercial space without tenants lined up and lenders cap you at 55% to 60% LTGDV, because nobody can tell them how long an empty unit will sit there. Signed pre-lets move that number.
Mixed-use schemes borrow at residential rates as long as the commercial part stays under 30% to 40% of the end value. The same lender will usually lend a few percentage points more against a heavy refurbishment or a permitted development conversion than against a new build, because the walls and roof are already standing and there is less that can go wrong in the ground.
The same handful of problems turns down most applications. The commonest is an optimistic GDV: developers pick the comparable sales that support the scheme rather than the ones a Red Book valuer will use, and a valuation 5% to 10% below your figure can put your LTGDV outside what the lender can write. Next is a weak exit, meaning “sell or refinance” with no comparable sales data and no agreement in principle behind it. Then experience that does not match the scheme’s size, and contractors whose filed accounts show a balance sheet that could not survive a bad month. Last, and the one that catches first-timers most often, Section 106 or Community Infrastructure Levy contributions left out of the cash flow: lenders take those off the day-one advance rather than treating them as something to deal with later.
How to Access Development Finance
Specialist brokers are a common route into development finance. The scale is visible in the wider figures: National Association of Commercial Finance Brokers members put through £33 billion of SME lending in 2025, up 25% on the year, and account for nearly two-thirds of broker-facilitated SME lending in the UK.
Broker route. Specialist debt funds and challenger development lenders have no branch network and no retail front door. The groundwork is done for them by commercial finance brokers, who run the identity and anti-money-laundering checks, size the loan against cost and against end value, appraise the scheme, test the exit, and hand the credit committee a finished proposal. Expect to pay the broker up to 1% of the gross loan on completion. The lender also pays them a separate fee, which has to be disclosed to you in the facility paperwork.
Direct lender route. Applying direct makes sense in three situations: you have a treasury function in-house, you already run a revolving credit facility with a clearing bank, or you have borrowed from this lender before and are known to them. For everyone else we recommend a broker, and the reason is narrow and practical. Lenders differ a great deal in what they will fund, and an experienced broker knows in the first week which ones will look at your scheme, which saves you the three weeks lost to submitting to one that was never going to write it.
How long it takes. Budget 4 to 8 weeks from a complete submission to your first drawdown. A straightforward application can be done in 2 to 3 weeks, but only where the valuation, the legal work and the credit decision all move without a hitch, which is not something you can plan around.
Heads of terms. A Decision in Principle or Heads of Terms comes back within 48 to 72 hours, provided your submission is complete: appraisal, developer CV, planning documents and cost plan all in the same package.
Due diligence. Weeks two to four go on valuation. The lender instructs an independent Royal Institution of Chartered Surveyors (RICS) surveyor to produce a Red Book valuation of the site and your projected end value, and a monitoring surveyor reads the cost plan to judge whether the scheme can actually be built for the money. Weeks four to six are the lawyers: title, planning conditions, the facility agreement and the security documents.
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.
Do not exchange contracts on the assumption that development finance will arrive within two weeks. Even a well-prepared application depends on the valuation, legal work and credit approval. If your purchase deadline cannot accommodate that process, the land transaction may fail before the lender reaches a decision.
Who Provides Development Finance in the UK
If you have planning, two or more completed schemes and the cash equity, start with the challenger banks: they underwrite slowly and lend cheaply. Specialist lenders earn their premium when you need to borrow more against the end value, or the scheme does not fit a standard residential box. Comparing the published criteria across the five categories below, that is the line we would draw.
| Lender type | Best suited to | Speed | Flexibility | Cost | Main limitation |
|---|---|---|---|---|---|
| Challenger banks: Aldermore, Shawbrook, Close Brothers and four others | Experienced developers with planning, equity, and a clean exit | Slower, rigorous underwriting | Low, strict covenants | Usually the lowest; Shawbrook publishes no rate and Aldermore prices each deal individually | Won’t entertain speculative planning plays or first-time developers |
| Specialist development lenders: Octopus Real Estate, Maslow Capital and others | Stretched senior, mixed-use or unusual scheme structures | Faster execution | Higher leverage, more flexible on borrower profile | Slightly above challenger-bank pricing | Pricing premium over challenger banks |
| Peer-to-peer (P2P) and institutional platforms (Blend Network, CapitalRise, Assetz Capital) | Tertiary-market schemes, sometimes first-timers with experienced professional teams | Moderate | Accommodating on borrower profile | Moderate to high | Smaller facility sizes typically |
| Mezzanine providers (Pluto Finance, Maslow Capital mezzanine finance, ICG, family offices) | Developers with the scheme but not the equity | Fast, layered onto existing senior | High, second-charge position | From about 12% a year, typically 12-15% | Second-charge risk, priced accordingly |
| High-street banks (NatWest, Lloyds, Barclays) | Larger developers with an existing banking relationship | Slow | Low | Quoted per deal | No published development lending criteria we could read |
| Verified October 2026. | |||||
The challenger-bank row covers Aldermore, Shawbrook, Close Brothers, Paragon, United Trust Bank, OakNorth and Cambridge & Counties; the specialist-development-lender row covers Octopus Real Estate, Maslow Capital, Hilltop Credit Partners, Roma Finance, Interbay and Pluto Finance.
Allica does not list ground-up development finance among its property products. Its bridging covers refurbishment, small permitted development projects and development exit, while its bridge-to-term option can run as a 7-year facility.
An existing Allica relationship for a commercial mortgage or a business loan will not get you a ground-up development facility, because it is not a product they offer. Their main review and commercial mortgages review set out what they do write.
We have reviewed the lenders you are most likely to be shortlisting individually: Aldermore, Shawbrook, Close Brothers, Octopus Real Estate, Maslow Capital, Hilltop Credit Partners, Roma Finance and Blend Network. The two most often compared sit side by side at Shawbrook vs Aldermore, and our ranking of the mainstream lenders is at best development finance lenders UK.
Drawdowns, Monitoring and Repayment
The lender does not visit your site. A monitoring surveyor does it on their behalf, usually a chartered RICS surveyor, appointed by the lender and invoiced to you. Everything that follows in this section runs through that person, so it is worth knowing what they are looking for before they arrive.
- Monitoring surveyor fees run £500-£1,500 per site visit, with the initial appraisal and monthly drawdown visits both invoiced separately to you.
- The initial appraisal report signs off the cost plan from your quantity surveyor 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 monitoring surveyor 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.
The gap between your contractor’s invoice and the surveyor’s certificate is what catches first-time developers. Timber stacked in the compound is not funded; timber in the roof is. So your contractor bills you for materials the lender will not pay for until they are fitted, and you need the working capital to carry that difference for a few weeks at a time, every drawdown cycle.
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
Stretched senior and mezzanine both do the same job: they cut the cash you have to find at the start, in exchange for a higher rate on the money you borrow. Mezzanine starts at about 12% a year and typically runs to 15%, against senior at 6.5% to 9.5%. Run your appraisal at the higher figure before you take it, because a scheme whose margin only works at senior pricing is not a scheme you should be stretching.
Development exit finance comes in at the other end, when the building is finished but the units have not sold. You swap the development facility for cheaper short-term money, around 0.55% to 0.85% a month against 0.75% to 1.0% on the development loan, because the risk the lender was pricing for, that the thing might not get built, has gone. That buys you time to sell at a sensible price rather than at whatever the facility expiry date forces.
| 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 | Quoted deal by deal, between senior and mezzanine pricing | Takes total leverage to 70-75% LTGDV / 80-85% 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 | From about 12% a year, typically 12-15% | Stretches total leverage to 85-90% LTGDV | 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 | ~0.55-0.85% per month | Reduces cost once construction risk has gone | Facility term (typically 6-18 months) still needs a credible sales plan |
| Verified October 2026. | ||||||
Active providers of stretched senior and mezzanine include Hilltop Credit Partners, Blend Network, Pluto Finance, Maslow Capital’s mezzanine finance, 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.
These structures solve a cash problem, not a viability problem, so they should be the last piece of the appraisal rather than the thing that makes it work. There is more on the exit side at development exit bridging explained, and on ground-up schemes at ground-up development finance.
When Development Finance Is and Is Not Suitable
Settle how the loan gets repaid before you apply for it. Planning, a sound contractor and a decent margin will not compensate for an exit the lender cannot test, and the test is specific: comparable sales evidence if you intend to sell, an agreement in principle from the next lender if you intend to refinance. A scheme that has neither is not ready to go to credit, and submitting it anyway costs you the valuation fee to find that out.
| 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 |
| Defined, evidence-based exit: comparable sales or lender agreement in principle | 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 October 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. Shawbrook and Aldermore say their development finance is for experienced developers, though neither publishes a minimum number of completed schemes, so mainstream finance remains closed to most first-timers in practice. Mint Property Finance explicitly accepts first-time developers on schemes of up to 4 houses or 6 flats, at up to 65% LTGDV. 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?
Published senior development finance rates run from 6.5% to about 11.25% a year before fees, rising with leverage. Mezzanine starts at about 12% a year and typically costs 12-15%, while stretched senior is quoted deal by deal between the two. Add an arrangement fee of 1-2% of the gross facility, monitoring surveyor visits of £500-£1,500 each and a valuation fee of £2,000-£10,000. Legal and extension fees are also quoted per deal. See development finance costs explained for the full breakdown.
How long does a development finance application take?
A clean application typically takes 4-8 weeks from submission to first drawdown. Some straightforward applications can complete within 2-3 weeks when the valuation, legal work and credit approval move without delay. Do not exchange contracts on the assumption that funding will arrive within 2 weeks.
How we reviewed development finance
What we covered. The assessment covers product mechanics, costs, lender criteria and application requirements for UK property developers. The evidence comes from lenders’ and brokers’ own published pages and the Bank of England.
Data sources. On 5 October 2026, we checked lenders’ own development finance pages for lending limits and experience rules, Construction Capital and Alternative Bridging Corporation for rates, and the Bank of England for Bank Rate. The evidence base also includes the National Association of Commercial Finance Brokers’ Intermediary Market Outlook 2025/2026.
We also read the published rate guides of the specialist development lenders named in the table above during the same October 2026 pass. Where a lender publishes no rate, as Shawbrook does not, the table says so rather than substituting a market average.
Update cadence. We re-verify this page regularly and when a provider changes pricing, eligibility or terms. The verification date reflects the most recent full review. This page carries no affiliate links; our editorial policy explains how we keep our assessments independent.