Development finance is the specialist form of property lending used to fund construction, conversion, and major refurbishment projects in the UK. It operates differently from a standard mortgage in almost every respect — the structure, the underwriting, the drawdown process, the metrics, and the costs are all specific to development. If you're planning your first project or exploring options for your next scheme, this guide explains exactly how development finance works and what lenders need to see.
Development finance funds projects where the primary value creation happens during the build period — not from purchasing an existing finished asset. It covers:
A development finance facility has two core components that work together:
This is the initial amount released on day one to cover the cost of acquiring the site or existing building. It's calculated as a percentage of the land/purchase value — typically 50–65% of land value, or structured to deliver a specific combined LTGDV across the whole facility.
The remaining loan amount is held by the lender and released in tranches as construction progresses. Each tranche requires inspection and sign-off by a monitoring surveyor before funds are released. Interest only accrues on drawn funds — so in the early stages of a project, the interest burden is relatively light.
💡 Key advantage: Interest is charged on drawn funds only — not the full facility from day one. On a 12-month project drawing down over 8 months, this significantly reduces your total interest cost versus a lump-sum loan.
Two ratios dominate development finance underwriting. You need to understand both to structure a viable deal.
LTC measures the total loan as a percentage of total project costs — land price plus all build costs plus professional fees (architect, planning, QS, legal, finance costs). Most development lenders will advance up to 75–90% LTC, meaning you need to contribute 10–25% of total costs as equity.
LTGDV measures the total loan as a percentage of the completed project's estimated market value. This is typically the binding constraint — most lenders cap LTGDV at 60–65%, regardless of how good the LTC looks. The reason: LTGDV captures the project's profit margin. A scheme with thin margins might be within LTC limits but exceed LTGDV limits.
| Metric | Formula | Typical Limit |
|---|---|---|
| LTC | Total loan ÷ Total project costs | 75%–90% |
| LTGDV | Total loan ÷ Gross Development Value | 60%–65% (senior debt) |
| LTGDV with mezzanine | Total debt (senior + mezz) ÷ GDV | Up to 80%–85% |
💡 MW Capital Advisory rule: We apply a minimum 20% profit on GDV and a maximum 75% LTGDV to all development appraisals. Projects that don't meet both thresholds are restructured before being presented to lenders.
| Cost Component | Typical Range | Notes |
|---|---|---|
| Interest rate | 7%–12% per annum | Charged on drawn funds only |
| Arrangement fee | 1%–2% of facility | Typically deducted from first drawdown |
| Exit fee | 0%–1% | Some lenders, not all |
| Monitoring surveyor | £500–£1,500 per visit | Required — paid by borrower |
| Valuation fee | £1,500–£5,000+ | Depends on scheme complexity |
| Lender legal fee | £2,000–£5,000 | Fixed or % — paid by borrower |
Submit your development appraisal, planning documents, build schedule, professional team CVs, and exit strategy. The lender reviews and issues a credit-approved term sheet — typically 1–2 weeks.
The lender commissions an independent RICS valuation showing current "as is" value and GDV. The valuer inspects the site and reviews planning consent. Takes 1–2 weeks typically.
Solicitors on both sides review title, planning consent, build contracts, and facility documentation. Takes 2–4 weeks — often the longest part of the process.
Facility completes. Day one advance is released to fund the land/site acquisition. Monitoring surveyor is formally appointed.
As works progress, you submit a drawdown request with evidence of works completed. The monitoring surveyor inspects, verifies, and approves. The lender releases the next tranche — typically within 3–5 working days of surveyor sign-off.
Final drawdown released on practical completion. You then sell or refinance to repay the facility in full — typically within 1–3 months of completion.
A credible development finance application requires a professional pack. The stronger your pack, the faster and cheaper your funding:
| Item | Amount |
|---|---|
| Land purchase price | £600,000 |
| Build costs (6 houses × £150k) | £900,000 |
| Professional fees & contingency | £120,000 |
| Finance costs (est.) | £130,000 |
| Total project cost | £1,750,000 |
| GDV (6 houses × £450k avg) | £2,700,000 |
| Gross profit | £950,000 (35% on GDV ✓) |
| Max loan at 65% LTGDV | £1,755,000 |
| LTC check (£1,755k ÷ £1,750k) | 100% — needs adjustment |
| Adjusted loan (90% LTC) | £1,575,000 |
| Developer equity required | £175,000 cash + land |
Tell us about your scheme — site, GDV, build costs, and timeline. We'll run your appraisal, identify the right lenders, and get you competitive terms typically within 24 hours.
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