Ground-Up Development Finance: LTC, GDV, Costs and Exit

What Ground-Up Development Finance Is

You use ground-up development finance to build new homes on cleared or undeveloped land, rather than to refurbish or convert something that already stands. That difference shapes everything else: you begin with a site earning nothing and finish with a scheme you still have to sell.

Your risk and the lender’s both build through the whole programme, because no income arrives until the units sell. That’s why ground-up prices above almost any other property loan, and why your cash flow has to carry the site from bare land to finished homes: you have little to show on day one but an empty plot, and the money is released only as the build is certified, stage by stage.

How the Facility and Drawdowns Work

You get two things in one facility: the land, funded at a lower loan-to-value, and the build cost, drawn down in stages as construction moves on. None of it arrives as a single lump sum.

Your drawdowns wait on a monitoring surveyor who inspects each stage. On site, the first-floor slab is signed off at month-end before the money for the roof is released, usually within five to ten working days of the request.

You don’t pay interest monthly; it rolls up on the balance, so nothing leaves your cash flow during the build. The trade is that the debt keeps growing and lands as a single repayment at exit.

The Key Metrics: Loan to Cost and Loan to Gross Development Value

You’re measured against two limits at once. Loan to Cost (LTC) sets your loan as a share of total project cost, and most senior lenders reach 70 to 75%. The second limit measures the loan against the projected finished value, the Gross Development Value (GDV), and caps senior debt at roughly 55 to 65%.

Your margin decides which of the two bites first. Low build costs against a high end value support a higher loan-to-cost; a thin-margin scheme hits the GDV ceiling whatever its costs look like.

You reach 85 to 90% loan-to-cost only by adding mezzanine behind the senior debt, which lifts your gearing and your blended rate together. A high loan-to-cost doesn’t lower your true cost; it moves the gap into more expensive money. Take that extra gearing only if it frees enough of your cash flow to fund a genuine second project, rather than quietly thinning the margin on this one.

What Ground-Up Development Finance Costs

You’ll pay more than on a bridging loan or a commercial mortgage, because construction risk sits inside the facility. Rates run around 0.85 to 1.5% a month, with a 1 to 2% arrangement fee and, on some lenders, a 1% exit fee on redemption.

Your deposit matters more than the rate you’re quoted. You fund 20 to 35% of total project cost yourself, that equity is the buffer absorbing any cost overrun before the lender’s money is touched, and it’s the bigger commitment of the two by a distance.

You can add mezzanine or an equity partner to cut what you put in, but every layer raises the total cost. Model the whole cost of the money against your gross development margin, not the monthly rate, because rolled-up interest and fees together decide what your cash flow actually keeps. Set the rolled-up interest and the arrangement and exit fees beside the gross margin before you commit, because that’s the comparison the year-end will make for you anyway.

Track Record, Planning and Exit

You’ll find ground-up hard to reach as a first-time developer. Most specialist lenders want at least one completed comparable scheme, plus a record of your previous projects, the contractors you used, and how quickly the units sold. Experience earns a lower rate and a higher loan-to-cost.

Your planning has to be settled before day-one money is released: lenders want full permission, or a clear resolution to grant rather than outline consent, with nothing in the conditions blocking a start. The Community Infrastructure Levy has to be costed in as well, because an unfunded surprise there lands straight on your cash flow at exactly the point the site is hungriest.

On your first scheme, a partner is worth more than a better rate. You need a credible exit before a lender advances anything, whether that’s unit sales, a refinance onto a term mortgage, or a development-exit bridge if sales run long, and a scheme with no completed comparable behind it can clear every one of those tests and still be declined at credit committee. Partnering on the first one is a route in rather than a defeat.

Ground-Up Development Finance FAQs