Development Finance For First Time Developers

Development finance for first-time developers is funding for ground-up builds, conversions and heavy refurbishments from lenders that do not require a track record. High-street development lenders usually want experience on schemes of the same size. In development finance, first-time developers are assessed by specialist and stretched senior lenders on the scheme's profit margin, costings and exit instead. Funding comes from high-street banks, challenger banks, venture capitalists (often called VCs), private equity firms and joint venture lenders. Mortgage Lane arranges development finance for first-time developers on residential and commercial schemes. The funding structures available without experience, the three numbers every application is judged on and the costing mistakes that sink first projects are set out below.

The three numbers every development application is judged on

Every development finance decision runs on three ratios: profit on cost, loan to gross development value and loan to cost. A first-time developer should know all three before approaching any lender.

• Profit on cost (POC) is the projected profit as a percentage of total project cost. Lenders set a minimum, commonly around 15% to 20% depending on the tier, and a scheme below it falls outside criteria whatever else it has going for it. Calculating POC honestly before paying for applications and valuations is the cheapest check a first-time developer can make.
• Loan to gross development value (LTGDV) is the gross loan against the end value of the completed scheme, its gross development value (GDV). It is the lender's headline risk measure: a higher LTGDV means more leverage and more risk.
• Loan to cost (LTC) is the loan against total project cost: land, construction, interest, professional fees, planning, legal costs and taxes. On the cases we arrange, LTC runs up to 90%, and some mezzanine structures reach 100%.

Lending options for first-time developers

The market splits into four structures, and only some of them work without experience.

Senior funding comes from high-street and specialist banks, secured by a first charge. It is the cheapest money with the tightest criteria: in our experience high-street banks usually lend no more than about 50% LTGDV, require 15% to 20% profit on cost and want experience on schemes of the same size. This tier is hard to reach without a track record, which is why the structures below exist.

Stretched senior funding comes from specialist banks and short-term lenders, also on a first charge, and is the first-time developer's main route: up to 75% LTGDV and up to 90% LTC on the cases we arrange, with profit on cost of around 15%. Prior experience is not always required, and private investor funds can be accepted for the deposit and upfront costs. There is one charge and one lender, with more leverage than senior debt and pricing to match.

Mezzanine funding sits behind the senior lender on a second or third charge and is repaid after the senior debt at exit. It takes the capital stack to 75% to 80% LTGDV and 95% to 100% LTC, and prior experience is not always required. If the numbers only work with mezzanine from day one, the deal is usually too thin. Mezzanine is more often used for cost overruns, delays and releasing equity part way through a project, and it can save a scheme stuck in the build phase. Full detail is on mezzanine finance.

Under a profit split, the lender funds the whole project, charges interest and takes a share of the net profit at exit, usually 50% on the cases we arrange. It is only worth it on unusually profitable schemes, and it mainly suits builders who want to run their own first scheme without putting their own capital at risk.

As at 1 October 2026, the lowest development finance rate we were seeing was 0.45% a month, for the strongest schemes. Stretched senior facilities for first-time developers price above that, because pricing rises with leverage, scheme risk and the developer's experience. Every rate is subject to status and lender criteria and can change.

The costing mistake that sinks first-time applications

Under-budgeting the build to flatter the profit is a common and expensive first-timer error, because the lender lends against the quantity surveyor's costings rather than yours. On a development loan the lender instructs a quantity surveyor (QS) to assess your costings against current market prices, and the figures the QS approves become the figures the lender uses. If the QS concludes your costs are under-budgeted, your POC drops (possibly below the lender's minimum), the funding percentage falls after the valuation, and you cover the shortfall after you have already paid for applications and reports.

The disciplines that avoid it:

1. Engage a QS before finalising the budget rather than waiting for the lender to instruct one. An upfront assessment costs little against a funding cut part way through the process.
2. Benchmark your costs against industry cost data.
3. Carry a contingency scaled to the scheme's complexity and risk.
4. Review the costings with the QS as the build progresses, so the projections stay in line with actual costs before each drawdown.

Drawdowns, the QS, and how to spend less on both

Development finance is released in stages, called drawdowns, and the QS signs off progress before each one and charges for every site visit. Fewer, larger drawdowns therefore cost less than many small ones. A main contractor who can complete substantial phases between drawdowns cuts the number of QS visits, smooths cash flow and keeps the project moving. On the lender's side, asset managers monitor the security's condition and value through the term. Keeping the QS and the asset manager informed and satisfied keeps the funding continuous.

Building the CV that unlocks the next tier

A completed first scheme is worth more than its profit, because it opens the way to senior funding. High-street development lenders want a developer's CV showing a track record on comparable schemes. Document the first project as you go (scheme size, budget against outturn, timeline and exit achieved), so the second application can price a tier cheaper than the first.

Development Finance For First Time Developers: frequently asked questions