Business financing simplified

Development Finance

Business financing simplified

Development Finance
in a nutshell

Development finance is a funding option used to build, convert or refurbish residential or commercial property. It is often used to pay for the purchase and construction costs of a project.

Development loans can be used for any part of a project, from purchasing a site to helping fund the final phases. These loans vary in term from 6-24 months, depending on the time and the nature of the project. A minor refurbishment may not require the amount of time that a ground-up development will need, due to the scope of the works.

Most of the time a development loan will have retained or rolled up interest, where the borrower is not required to make monthly payments to the lender, but upon conclusion of the loan, the entire capital and interest will be settled.

Lenders will take charge over the property and the company borrowing, whilst the loan is active. Whilst the development is ongoing, the lender will instruct a Monitoring Surveyor to oversee the project and the funding is usually provided in tranches; which are determined by the phases of the project.

It is very important to give any lender an idea of what your exit strategy is. The most common exit strategies are; sale, using proceeds from the sale of the complete project to settle the loan; or refinance, onto a longer-term mortgage product.

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Development finance can usually be arranged very quickly, certainly faster than you would expect with a mortgage application.


Low interest

Interest rates for development finance are usually not particularly high. Experienced developers can expect to obtain lower rates than inexperienced developers, and rates might also be lower for larger projects. If you borrow a lower proportion of the gross development value (GDV), then you might also pay a lower rate.


Rolled up interest

With development finance, you don’t usually need to make regular monthly repayments. Instead, the interest ‘rolls-up’, and you repay all of the capital and interest in a single payment at the end of the term.


Multiple projects

You can do multiple projects with the same capital. Instead of wrapping all your funds into one project, if you finance it you can lower your exposure and utilise the capital elsewhere.


Who is Eligible?

  • People who have UK residency.
  • Property must not be personal primary residence.
  • People with not-terrible credit.
  • It will improve your application if you have other assets and/or;
  • Experience with property development.

How does it work?

1. Application: The application process will focus on the property, the project, the team and the financials (loan to value, etc.).

2. Funding: Lenders will fund the project in tranches, which are related to the progression of the project, and subject to approval of their monitoring surveyor.

3. Exit: All the fees and interest are rolled up into the facility, and everything is settled at the end of the facility.

How Much Does It Cost?


  • Value of the property/site.
  • Gross development value (GDV).
  • Size of deposit.
  • Indication of cost of the development (usually cost breakdowns from contractors).
  • Indication of current debt on property.
  • Description of what the exit strategy is.
  • Company name and director’s details.

This can be anywhere from 1 to 3 months, it depends on how much information you have together, a lender will want to see all sorts of information, such as; planning permission, a detailed breakdown of costs, an asset/liability statement from the developer, and details of project management.

Furthermore, a valuation and surveyors report will have to be done, which can take anywhere from 2 weeks to 2 months, along with lawyers doing the relevant documentation and checks.

Either by refinancing to a longer-term product, such as a buy-to-let mortgage, or selling the completed development and repaying the funds.

Qualifing questions

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