Development Finance – Residential
What is Development Finance?
- Development Finance is a tailored loan for property developers, funding both land purchase and construction for large-scale projects.
- Purpose: Used for ground-up developments and major conversions, where build costs often exceed the original site value.
- Loan Structure: Split into a “Day 1” loan for land purchase and a development loan for construction, released as work progresses.
- Staged Funding: Development funds are drawn in tranches, paid in arrears after surveyor approval at key milestones.
- Repayment: No monthly payments—interest is rolled up or retained, with full repayment upon sale or refinance at the developed value.
It’s the ideal solution for funding complex property developments efficiently.
Key Benefits
Maximised Capital Efficiency: Minimise personal capital use to take on larger or multiple projects and boost returns.
Ideal for Large Projects: Suited for complex developments requiring significant funding.
Flexible Use: Covers housebuilding, flats, Build to Rent, commercial-to-residential conversions, and student accommodation.
SME Developer Support: Financing available for first-time developers with contractor experience and those transitioning from bridging finance.
Capital Raising: Unlock equity in owned property or land and secure funding for development costs, improving cash flow and reinvestment potential.
Who is Eligible?
Limited Companies, PLCs, Sole Traders, Private Individuals, SIPPS and Partnerships are all able to use residential development finance. Lenders will look at several factors when assessing suitability and price including:
- The level of experience the developer has
- The size and complexity of the project
- The cost of the scheme and schedule of works to make sure both are realistic.
- The value of the site and the value of the finished project or Gross Developed Value (GDV)
- Your probability of repaying the loan via either a successful sale or refinance of the property
- Your site must usually already have planning permission
How much can you borrow?
- Loan-to-value (LTV) is typically around 70-80% of the project costs and up to 100% of the construction costs. Some lenders will go to 90% of costs depending on the profile of the applicant and projects
- Generally, the total loan is restricted to 65-70% of the Gross Developed Value (GDV) to ensure that there is enough profit for the developer, or that it can be refinanced.
- You can normally get up to 60-65% towards the purchase price of the site, or raise this amount against a site with planning that you already own and intend to start developing.
- Loan amounts starting from £100,000 to £50M+.
Interest Rates & Terms
- Rates will depend on the eligibility criteria but typically can be 0.7% to 1.5% per month depending on the risk level of the scheme
- Loan terms are typically 12– 36 months
- Fixed and variable rate options available.
