Development Finance as an Alternative to Bridging Loans

For property developers undertaking new-build schemes or major refurbishment projects, development finance provides a robust and purpose-built alternative to bridging loans. While similar in cost and short-term nature, development finance is structured specifically to support the full development lifecycle, including land acquisition and construction costs, making it more suitable for large-scale projects.

What is development finance?

Development finance is a specialist loan designed for property development, including ground-up construction and extensive renovations. Unlike standard bridging loans, which are typically used to acquire property and require works to be self-funded, development finance is structured to fund both the purchase of the site and the cost of construction.

Loan to Cost (LTC) and Loan to Gross Development Value (LTGDV)

Development finance is underwritten using two core metrics:

Loan to Cost (LTC)

Lenders may offer up to 90% of total project costs, including land purchase and build costs. This allows developers to minimise their own capital contribution and improve leverage across the scheme.

Loan to Gross Development Value (LTGDV)

Lending is also capped as a percentage of the completed value of the project, typically up to 75% of GDV. This ensures the loan remains proportionate to the end value and provides a clear framework for risk management.

Together, these metrics allow lenders to fund up to 100% of build costs, subject to GDV and overall project viability.

How funding is released

Funds for construction are usually released in staged drawdowns, aligned to the build programme and verified by an independent monitoring surveyor. This ensures funds are deployed efficiently and that progress aligns with the agreed development plan.

Advantages over bridging loans

Designed specifically for development projects

Development finance is structured to support construction activity, whereas bridging loans are primarily acquisition-focused and rarely fund works in full.

Higher leverage and improved capital efficiency

By funding a high proportion of total costs, development finance allows developers to undertake larger or multiple projects without tying up excessive personal capital.

Aligned with development timescales

Terms typically range from 12 to 24 months, offering greater flexibility than standard bridging facilities and aligning more closely with construction timelines.

Clear exit strategy framework

Development finance is commonly exited through sale of the completed units or refinance onto residential, buy-to-let, or commercial mortgages once the scheme is finished and stabilised.

When development finance is preferable to bridging

Development finance is generally the more appropriate option where works are structural or extensive, costs are significant, and the project relies on GDV rather than day-one value. In these cases, it provides a more efficient and scalable funding solution than using a bridge combined with self-funded construction.