Property Development Finance

What is property development finance?

Property development finance is short-term funding for building, converting or substantially refurbishing property, released in stages as the work progresses and repaid from the sale or refinance of the completed scheme. The loan is advanced against a project rather than a finished asset: an initial advance towards the land or existing building, then staged drawdowns against certified build costs, with interest usually rolled up into the facility rather than paid monthly. The facility is sized against the finished value, the gross development value (GDV), and against total cost: the lender caps it at a percentage of each, its loan to gross development value (LTGDV) and loan to cost (LTC) ceilings, and lends the lower figure. It is repaid when the units are sold or refinanced onto a term mortgage. On the cases we arrange, facilities run for up to 36 months, covering the build and a sales or refinance period.

Development finance to a company or investor is unregulated business lending. A development the borrower intends to live in, such as a self-build or custom-build home, falls under Financial Conduct Authority (FCA) regulation (MCOB) and uses regulated self-build products instead. England added 208,600 net new dwellings in 2024 to 2025, including 190,600 new builds, 17,710 from changes of use and 3,850 from conversions, against a government target of 1.5 million homes this Parliament (MHCLG accredited official statistics).

Development finance rates

Development finance has five cost lines, and the headline monthly rate is only one of them. Interest is charged on the drawn balance, not the facility limit, and is usually rolled up (added to the loan and repaid at exit) or retained (deducted from the facility at the outset) rather than paid monthly. The other four are an arrangement fee on the facility, an exit fee on the loan or the GDV, monitoring surveyor fees for each drawdown inspection, and the lender's valuation and legal fees. Some lenders also charge a non-utilisation fee on undrawn funds. Pricing moves with leverage (at a higher LTC or LTGDV, rates and fees rise), the developer's experience, the scheme type, the location and the loan size, so compare the total cost of funds across the full term, as our bridging loan guide does for bridging.

As at 1 October 2026, the lowest development finance rate we were seeing was 0.45% a month, for the strongest schemes. Riskier schemes 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.

If you have an appraisal, a site or a cost plan, send it to us. We run both caps against the scheme and tell you what it supports before any lender is approached.

Development finance criteria

The figures below are what we see on the cases we arrange, as at 1 October 2026. They describe our experience across the lenders we use and are not a rule for the whole market. Each lender sets its own criteria, and the terms on any scheme depend on the scheme, the borrower and the lender's own assessment.

Types of development finance, and how each is structured

Development finance covers several structures, chosen by what is being built, who is building it and how much of the risk is carried by the lender.

Ground up development finance

Ground up development finance funds a scheme built from a cleared or vacant site, from the foundations upwards, and is the most fully staged form of the product: a land advance on day one, then drawdowns that follow the build programme from groundworks through superstructure, first fix and second fix to completion, each released against the monitoring surveyor's certificate. Lenders underwrite a ground-up scheme on the consented drawings, a fixed-price or tendered build contract, a programme with float, a contingency inside the cost plan, and a structural warranty (NHBC, LABC or an equivalent provider) or Professional Consultant Certificate arranged from the outset. Pre-commencement planning conditions must be discharged before the first build drawdown.

Ground-up schemes carry more cost risk than conversions. Groundworks, services and abnormals surface once digging starts, so the contingency, the contractor's covenant and the developer's experience weigh more heavily. A building at least 18 metres high or with at least seven storeys, containing at least two residential units, is a higher-risk building under the Building Safety Act 2022, and it needs building control approval from the Building Safety Regulator before construction starts, which adds to the programme. On the cases we arrange, ground-up schemes follow the ceilings for their end use: up to 75% LTGDV and 90% LTC for residential schemes, and up to 70% LTGDV and 90% LTC for commercial schemes, deal dependent, with pure commercial ground-up schemes usually nearer 65% LTGDV. Our ground up development finance page covers the staging and the arithmetic.

Residential development finance

On the cases we arrange, ground-up new-build housing and flats, from a single plot to multi-unit schemes, attract the highest leverage: up to 75% LTGDV and 90% LTC. Lenders underwrite the planning consent, the cost plan, the developer's or contractor's track record, the sales evidence for the finished units and the exit: sale, or refinance onto buy to let or residential mortgages. Interest is rolled up, drawdowns follow the monitoring surveyor's certificates, and the facility is sized to fund the whole build with a contingency. A block of flats that is a higher-risk building needs the same building control approval from the Building Safety Regulator, and lenders build it into the programme. Our residential development finance page covers unit releases and the develop-to-let test.

Commercial development finance

On the cases we arrange, offices, industrial and logistics units, retail, leisure, healthcare premises and later-living schemes are funded at up to 70% LTGDV and 90% LTC, varying deal by deal (pure commercial schemes are usually nearer 65% LTGDV, especially ground up, and purpose-built student accommodation runs up to 65% LTGDV; see PBSA finance). The exit is underwritten harder than the build: a pre-let, a forward sale or a credible letting market decides the case, and the GDV is an investment valuation that capitalises the expected rent rather than a residential comparables figure. Fewer lenders fund speculative commercial development without pre-lets. In our experience the same LTGDV percentage applies, but the valuer's softer yield and letting assumptions produce a lower GDV, so the loan is smaller. Our commercial property development finance page works the pre-let and speculative arithmetic, the finished asset refinances through commercial mortgages, and the commercial mortgage guide explains how the exit is valued.

Mixed-use development finance

Schemes that combine residential and commercial elements (such as flats above retail, or a ground-floor surgery under apartments) are underwritten on a blended GDV and exit: residential units to sale or buy to let, commercial units to letting or sale. The leverage depends on the split between the two, and the exit can be semi-commercial mortgages.

Conversions and permitted development schemes

Converting offices, agricultural buildings, shops and other non-residential buildings to homes, under full planning or permitted development rights with prior approval, is a distinct category: no groundworks, a faster programme, and a planning position that must be evidenced (the prior approval decision, and any conditions on space standards and natural light). On the cases we arrange, residential conversions are funded on the same LTGDV and LTC ceilings as new build, with closer attention to structural surveys and the unknowns inside an existing building. Change of use delivered 17,710 homes in England in 2024 to 2025, 5,154 of them from former offices (MHCLG). Our new builds and conversions page covers the warranty and certification position at exit.

Heavy refurbishment and HMO / multi-unit development

Structural refurbishment, extensions, and the creation of HMOs or multi-unit blocks from single dwellings sit between refurbishment bridging and full development finance. Where works are heavy (structural work, change of use or multiple units), development-style facilities with staged drawdowns apply, and on the cases we arrange HMO-led schemes are funded up to 75% LTGDV. Light refurbishment (cosmetic works, no structural change) is funded by refurbishment bridging instead, covered in the bridging loan guide. The HMO exit (licensing, planning and the valuation route) is set out in our HMO mortgages guide, and the multi-unit exit on MUFB mortgages. Ask us whether a scheme counts as a refurbishment or a development for funding purposes.

Hotel development finance

Hotel development finance funds the construction or conversion of a hotel, aparthotel or serviced-accommodation block, and is underwritten on the trading business the building will house rather than on residential sales. Lenders assess the operator and the brand or management agreement, projected occupancy, average daily rate (ADR) and revenue per available room (RevPAR), the going-concern value of the finished hotel, the planning use (Use Class C1 in England and Wales, Class 7 in Scotland) and the exit: refinance onto a hotel mortgage on stabilised trading, or sale to an operator or investor. Conversions of offices, warehouses and larger houses to hotel use sit alongside ground-up hotel builds.

Hotel development is specialist lending: on the cases we arrange, specialist lenders fund hotel schemes up to 65% LTGDV, with the loan also capped by cost. Our hotel development finance page works the trading arithmetic. The term finance the scheme exits onto is covered on hotel mortgages, the specialist exit structures on apart-hotel development exits and the short-stay income model in the holiday let mortgage guide.

Build to rent development finance

Build to rent development finance funds residential schemes designed to be held and let as a single block rather than sold unit by unit, so the exit is a refinance onto investment lending against stabilised rent. Lenders underwrite the estimated rental value (ERV), the stabilised yield and the investment value it produces, the letting-up period between practical completion and full occupancy, the management and amenity model, and the block's single-title structure. The GDV is an investment valuation of the let block, and the exit lender is a portfolio, multi-unit or commercial lender rather than a residential mortgage lender.

On the cases we arrange, the residential ceilings apply to the build, up to 75% LTGDV and 90% LTC, with no reduction for build to rent as such, and the exit facility is sized on the let value. In our experience lenders do not set a fixed letting-up period: the block can be refinanced onto investment lending as soon as it is let, with a development exit loan carrying the facility while units let if needed. Our build to rent development finance page works the rent-to-value arithmetic. The exit products are covered on MUFB mortgages, commercial mortgages for blocks of flats and portfolio mortgages, and the buy to let mortgage guide covers the investor-led block underwriting that governs the exit.

Senior, stretched senior and mezzanine finance

Senior debt is the first-charge facility at the most conservative leverage, priced lowest and usually requiring experience. Stretched senior takes the first charge to the ceiling, 75% LTGDV and 90% LTC on residential schemes on the cases we arrange, at a higher price, and is available to first-time developers on the right scheme. Mezzanine finance sits behind the senior lender on a second charge and takes total funding above the senior ceiling, to 95% to 100% of cost, for a higher rate and often a profit share. Joint venture equity replaces the developer's own equity entirely for a share of the profit, usually 50% of the net profit on the cases we arrange. The tier table in the arithmetic section below sets out the leverage, experience and profit on cost position of each. If a scheme needs more than senior debt, we can structure the capital stack.

Joint venture development finance

Joint venture development finance replaces some or all of the developer's equity with a funding partner's capital in exchange for a share of the profit, usually 50% of the net profit on the cases we arrange. The joint venture lender often provides the senior debt as well, so the scheme can be funded up to 100% of cost. The developer contributes the site, the planning consent, the professional team and the delivery; the funder contributes the equity and takes its return from the profit at exit, sometimes with a priority return or coupon on its capital ahead of the split. The structure is documented through a special purpose vehicle, with a shareholders' or joint venture agreement setting out control, decision rights, responsibility for cost overruns and the waterfall of proceeds.

Joint venture funding is available to first-time developers on strong schemes, and to experienced developers who want to run more schemes than their equity allows. In our experience joint venture funders do not usually set a fixed minimum profit on cost: they charge interest on the funds, take their share of the net profit and judge the scheme on its overall numbers, so the appraisal is scrutinised line by line. Our joint venture development finance page works the profit-share arithmetic, and our development finance for first-time developers page covers the private-investor and joint venture routes in depth.

Land finance and sites without planning

Land is funded at lower leverage than a consented scheme, and land without planning at lower leverage still: a land or bridging loan against the site's current value, with planning consent followed by development finance as the exit. Agricultural and rural land carries its own lending considerations, covered on agricultural bridging loans, and sites bought at auction need completion funding first (see auction property loans).

Development exit finance

When a scheme reaches practical completion with units unsold, a development exit loan refinances the development facility, usually at a lower rate, releasing capital and giving time to sell before the development facility runs past its term and into default. Exit loans lend against the completed value on a bridging basis, with sales proceeds paying down the facility unit by unit. See development exit finance, apart-hotel development exits for the specialist-asset version and the bridging loan guide for the mechanics. Exit finance has to be in place before the development facility expires, so it is arranged as practical completion approaches.

Regulated self-build and custom build

A development the borrower will live in is regulated lending with a different product set: self-build mortgages with staged advances against the build. See self-build mortgage lenders and, for renovation of a future home, renovation mortgages. Modern methods of construction are covered on our non standard construction mortgages page.

The documents we ask for first depend on the scheme: the consented drawings and the build tender for ground up; the appraisal and the planning decision notice for residential; the pre-let or the letting evidence for commercial; the prior approval or the planning consent for a conversion; the operator's business plan and the management or franchise agreement for a hotel; the rental appraisal and the management model for build to rent; and the full appraisal and details of your own contribution for a joint venture proposal. For a mixed-use scheme, get in touch with the split between the residential and commercial elements; for land, with or without planning, talk to us before bidding; and for a home you will live in, tell us at the outset.

Development finance lenders

Development finance lenders fall into five groups, and the scheme decides which group can fund it. High-street banks lend at the lowest cost and the lowest leverage (in our experience usually no more than about 50% LTGDV, and rarely above 65% even on commercial schemes) to experienced developers with strong balance sheets, on conservative schemes. Challenger banks sit above them on leverage and price, with more appetite for SME developers. Specialist development lenders fund to higher ceilings, including stretched senior facilities for first-time developers, and take on conversions, HMO schemes and complex sites. Mezzanine and joint venture funders provide the capital above senior debt for a profit share, and private lenders and family offices fund bespoke or time-critical schemes at a premium. Choosing a lender means matching leverage, experience, scheme type, location and speed, and no single lender covers every scheme.

What a development finance broker does

A development finance broker packages the scheme and places it with the lenders whose criteria fit it. A lender expects a development appraisal (land, build costs, professional fees, finance costs, contingency, GDV and profit on cost), the planning decision notice and conditions, a cost plan or contractor's tender, a build programme, the developer's and contractor's CVs and previous schemes, the exit strategy with sales or letting evidence, and the funding structure across senior debt, mezzanine and equity. The broker runs both caps, finds where the scheme fails a tier and restructures it, manages the valuation and monitoring surveyor instructions, and sequences the legal work to the land purchase deadline. Mortgage Lane arranges development finance for developers and investors. Mortgage Lane Limited is authorised and regulated by the Financial Conduct Authority (FRN 937192), and most development finance is unregulated business lending.

How development finance is arranged

1. We appraise the scheme against both caps and the lender tiers, then obtain indicative terms from lenders whose criteria match.
2. The lender runs its credit approval and instructs a development valuation (current site value, GDV and a build cost review) and the monitoring surveyor's initial report. Its solicitors carry out due diligence on title and planning and take the security: a first charge over the site, a debenture and any personal guarantees the lender requires.
3. The initial advance funds the land or purchase. Build costs are then drawn in arrears against the monitoring surveyor's monthly certificates, with interest rolled into the facility.
4. At practical completion the warranty and certification are issued, and the units are sold or refinanced, or a development exit loan takes over where sales run beyond the term.

The development finance arithmetic

Every facility is the lower of two numbers, a percentage of the finished value and a percentage of the total cost, and the one that binds shows the developer where the scheme is weak.

The two caps, worked

Two illustrative schemes, each with a £1,000,000 gross development value and £800,000 of total costs (land, build, fees, contingency and finance), are run against the ceilings in the table below.

Illustrative arithmetic on hypothetical figures, using the ceilings we see on the cases we arrange (75% and 90% residential; 70% and 90% commercial). Not an offer of finance.

On the residential scheme, cost is the constraint: the developer contributes 10% of costs plus anything the lender excludes from "cost". On the commercial scheme the lower LTGDV ceiling binds first, and the developer's equity rises. A scheme where LTGDV binds hard usually has high costs relative to its finished value, which means thin profit. That is the reason lenders test profit on cost alongside leverage. On a pure commercial scheme at 65% LTGDV, the same figures give a facility of £650,000 and developer equity of £150,000.

What counts inside the caps

The facility limit includes everything the lender advances: the land advance, the build drawdowns, and the rolled-up interest and fees. A facility described as "75% LTGDV" means the land advance, build tranches and rolled-up interest together cannot exceed 75% of GDV at exit, so a developer who sizes the facility on build cost alone and forgets the roll-up finds the last tranche unavailable. The developer's own equity goes in first: the land deposit and early costs are funded before the lender's money. The lender's land advance is a percentage of the land value, in our experience typically around 70% with specialist lenders and around 40% on the high street, not the whole price.

The lender tiers

The tier table below shows how each layer of the capital stack usually compares. The ranges are general and are not the terms of any one lender.

Profit on cost: the lender's margin of safety

Lenders require a minimum projected profit on cost, commonly 15% to 20%, because it is the buffer that absorbs cost overruns, softer sales prices and programme delay before the lender's security is impaired. A scheme at the LTGDV ceiling with thin profit fails because nothing sits between the facility and the finished value if anything moves. Contingency inside the cost plan (a percentage of build cost the lender expects to see) is the second buffer, and the monitoring surveyor's monthly reports are how the lender watches both.

Planning, levies and the programme

Ground-up development finance is conditional on planning permission, or, for a conversion, on prior approval under permitted development (guidance on the Planning Portal), and on the costs that the consent attaches. Where the council charges the Community Infrastructure Levy, it belongs in the appraisal as a cost, and so do Section 106 obligations, so that neither arrives as a surprise at commencement. Pre-commencement conditions, discharge timescales and, for higher-risk buildings, building control approval from the Building Safety Regulator before work starts and a completion certificate before occupation (stages still often called the Building Safety Regulator gateway approvals) all sit on the critical path the lender funds against.

Drawdown and monitoring

Funds are released in arrears against work certified by the lender's monitoring surveyor (a Royal Institution of Chartered Surveyors member, typically a quantity surveyor), who confirms the works completed, the costs incurred and the programme position each month. Cash-flow planning around this is the developer's main operational task: the contractor is paid after the certificate, so working capital has to bridge the gap between work done and funds released.

The exit decides the lender

Lenders underwrite the exit as hard as the build. Residential schemes exit by sale or by refinance onto buy to let mortgages (the buy to let guide covers how a newly built or converted unit is valued on refinance); commercial schemes exit by sale or a commercial mortgage on the let asset; HMO and multi-unit schemes onto their specialist products. Where sales overrun the term, a development exit loan replaces the facility. A scheme with a weak exit is funded at lower leverage or not at all, so the exit evidence goes into the package from day one.

Related reading: development finance for first-time developers covers the tier structures and private-investor deposits in depth, and the bridging loan guide covers refurbishment, land and exit bridging.