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Development finance

Development finance

A short-term loan secured on a site, drawn in stages to buy the land and pay for the build, and repaid from sales or a refinance when the scheme is finished.

By Aaron Lawson-Clark, Founder · Last reviewed:

What development finance is

Development finance pays for a property scheme while it is being built. The loan is secured on the site and released in stages as the work progresses. Interest is usually added to the loan rather than paid monthly, and everything is repaid at the end from sales or by refinancing onto a longer-term mortgage.

One UK lender describes it as a loan to fund the acquisition or refinance of an existing property or land and fund the construction of development in all forms, including conversions and ground-up schemes.

Lenders size the loan with two caps. LTGDV (loan to gross development value) compares the loan with the finished value of the scheme. LTC (loan to cost) compares it with the land, build and other costs. You can borrow up to the lower of the two. One lender publishes MAX LTGDV: 70% and MAX LTC: 90%.

Development appraisal and loan sizing calculator

Illustrative example figures. The default values are examples or dated published figures, not quotes or market rates. Inputs marked Example are our own illustrations, even where one provider’s published figure is shown beside them. Replace them with the figures in your own offer.

Example figure: the expected value of the finished scheme
Example figure
Example figure
Example figure
Example figure. One lender publishes a maximum of LTGDV Up to 70%
Example figure. One lender publishes a maximum of LTC Up to 85%; others publish higher maximums
Example figure. Lenders set this case by case
Bank Rate: 3.75% as at (Bank of England)
Example figure. One lender publishes a headline rate of 5.75% (over BoE base rate). Enter the margin from your offer
Example figure. Published terms run from 6 to 24 months to Max. 36 months
Example figure. One lender publishes From 1% arrangement fee. Enter the fee from your offer
Example figure. One lender publishes a 1% exit fee. Enter the fee from your offer
Example figure: agents’ and legal fees on sale
Rolled-up interest
Gross facility (lower of the two caps)—
Is the LTC cap the limit?—
Rolled-up interest—
Net loan towards land and build—
Share of costs the loan actually funds—
Your equity needed—
Profit after finance costs—
Profit on GDV—
Total finance cost (fees plus interest)—
Effective annual cost (estimate)—

Important information. RaiseDebt publishes general information about UK business finance. It is not financial advice or a recommendation, and it is not an offer or invitation to borrow. RaiseDebt is not a lender and is not authorised by the Financial Conduct Authority (FCA). Calculator results are illustrative estimates based on the figures you enter, not quotes. Lenders decide eligibility, rates and terms, and may run credit checks. Borrowing by sole traders, partnerships and other individuals can be regulated by the FCA; you can check any firm on the FCA Register.

Schedule
Assumptions and definitions
  • Gross facility = the lower of maximum LTGDV × GDV and maximum LTC × total cost (land + build + professional fees).
  • The caps are treated as gross: the arrangement fee, exit fee and rolled-up interest all come out of the facility, so less of it reaches the land and build. Lenders do not all work this way, so ask yours.
  • The day-one land advance is drawn at the start. The rest of the net loan is drawn in equal monthly amounts over the term to pay for the build. You pay the rest of the costs as equity, before the loan.
  • Interest is rolled up and repaid with the loan and the fees at the end, from sales or a refinance. No monitoring, valuation or legal fees are included.
  • Rolled-up interest is compounded monthly on the amount drawn, or charged as simple interest if you choose that option. Lenders differ: some capitalise interest quarterly, which gives a slightly lower figure than monthly compounding, so check your term sheet.
  • Profit = GDV less sales costs, total costs and finance costs. Profit on GDV = profit ÷ GDV.
  • Effective annual cost (estimate) is the internal rate of return (IRR) of the cash flows, meaning the money you receive after upfront fees and then every payment and fee, each at the date it falls. It is the annual rate r at which the present value of all of them is zero, Σ amount ÷ (1 + r)t = 0 with t in years. With monthly flows this is the same as (1 + monthly IRR)12 − 1. It is not a lender’s quoted APR and leaves out any cost not entered here.
  • Results are rounded estimates for illustration and are not an offer of credit.

How to size a development loan

  1. Enter the scheme figures. Use your appraisal: the finished value (GDV), land, build and professional fees with a contingency.
  2. Enter the lender’s caps. Use the maximum LTGDV and LTC from the term sheet. The lower result is the facility.
  3. Enter the rate, term and fees. Use Bank Rate plus the lender’s margin, a realistic build and sale period, and the arrangement and exit fees.
  4. Check the equity and profit. Compare the equity needed with what you have, and check the profit still leaves room for delays and cost overruns.
Not financial adviceRaiseDebt is general, educational information only. It is not regulated financial advice, a recommendation or an offer of credit. Calculator results are illustrative estimates, not quotes. Speak to a qualified, FCA-authorised adviser or broker, and your accountant, before making borrowing decisions.

When developers use it

Development finance is for building new homes or commercial space, converting a building or carrying out a heavy refurbishment. These are projects a standard mortgage or term loan will not fund while work is under way. The government-backed National Housing Bank targets smaller housebuilders, with a Minimum scheme size: 5 homes.

It is the wrong product for a finished, let building, where an investment or commercial mortgage is the usual product. For a light refurbishment, a bridging loan is usually simpler; one lender points borrowers to its Bridging and Refurbishment pages for other solutions.

How much you can borrow

Loan sizes depend on the lender. Published ranges include £1m-£20m at one specialist lender and a Maximum loan size: £3,500,000 at another. The National Housing Bank lends £250,000 to £200 million.

The caps matter more than the headline size. Published maximums are LTGDV Up to 70% and LTC Up to 85% at one lender, and MAX LTC: 90% at another. The National Housing Bank lends up to 90% of cost, typically around 80%.

Ask whether the caps include fees and rolled-up interest. The lenders we checked do not say. If they do (a gross cap), the fees and interest come out of the loan, and much less of it pays for land and building. With the calculator’s example figures, an 85% gross LTC funds only about 76% of the costs. Ask whether each cap is measured gross or net of fees and rolled-up interest before you rely on a quote.

The market is large. Bayes Business School’s lending survey records a Development book … 2025: £30.7bn. The British Business Bank’s ENABLE Build guarantee has supported Over £2.2bn of lending to smaller housebuilders.

Terms, drawdowns and interest

Terms are short: 6 to 24 months at one lender and Max. 36 months at another. The National Housing Bank lends for Typically 3 years (longer terms available).

The land advance is paid on completion of the purchase. Build money is then released in stages, after the lender’s monitoring surveyor confirms each stage of work. You do not usually pay interest monthly. It is Retained or Rolled-up, meaning it is held back from the loan or added to it and repaid at the end. At the National Housing Bank, sales of finished homes can cover future build costs on the same site.

What it costs

Pricing is a margin over Bank Rate (3.75% as at (Bank of England)) or a monthly rate. Published examples include 5.75% (over BoE base rate) at one lender, Monthly rates from: 0.90% at another, and an Interest margin: 3% to 7%, capitalised quarterly at the National Housing Bank.

Fees come on top: From 1% arrangement fee and a 1% exit fee at one lender, and an Arrangement fee: 2% at another. The National Housing Bank charges an Arrangement fee: 1% (no non-utilisation or exit fees). You also pay the lender’s monitoring surveyor, valuation and legal costs, which lenders do not publish.

Example With the calculator’s default figures (GDV £5m, total costs £3.3m, 85% LTC, 9.5% a year for 18 months, 1% in and 1% out), the gross facility is £2,805,000 and the LTC cap is the limit. After fees and about £242,000 of compounded rolled-up interest, about £2.51m reaches the land and build, so the developer puts in about £793,000.

The British Business Bank says its ENABLE Build guarantee may also be used to reduce the cost of borrowing for house builders, through the lenders that use it.

Security and controls

The lender takes a first legal charge over the site (Charge: First at one lender). Many lenders also take a debenture over the developer company and personal guarantees from its directors; the lender pages we checked do not set out the terms, so ask.

Expect controls throughout the build: staged drawdowns signed off by a monitoring surveyor, cost-to-complete checks and reporting on sales. Build delays, cost overruns, a fall in the finished value or planning problems can put you in breach and stop further drawdowns.

Who qualifies

Lenders look for experience and a credible exit. One lender lends to experienced property developers. The National Housing Bank requires that the site must be owned by a UK-registered entity and evidence of professional capability is required.

You need equity for whatever the caps leave uncovered: 10–15% of costs at 85–90% LTC with the commercial lenders above, before fees and interest. The National Housing Bank asks for Typically 20% (can be 10% for strategic schemes), and says Equity contribution can include planning gain.

Coverage varies. One lender works across England & Wales, another across England; the National Housing Bank Applies to England.

Most development loans are made to companies. A loan to an individual secured on property that the borrower or a family member will live in can be a regulated mortgage contract; check any lender or broker on the FCA Register.

Who provides it

  • Banks, specialist lenders and debt funds. Bayes’ survey found the top originators were 5 UK Banks, 3 International Banks, and 4 Debt Funds.
  • The National Housing Bank (Homes England), which offers Senior and mezzanine lending only.
  • Lenders backed by the ENABLE Build guarantee. Developers cannot go to the programme directly. They borrow from a lender in the usual way, and the lender uses the guarantee (British Business Bank).
  • Mezzanine and stretched-senior funders, which lend behind the senior loan to reduce the equity needed, at a higher price. See senior and mezzanine finance.

Pros and cons

Pros

  • One facility funds land and build.
  • Interest is usually rolled up or retained, so there are no monthly payments during the build.
  • High loan-to-cost is available, up to 85–90% at some lenders.
  • The government-backed National Housing Bank charges no exit or non-utilisation fees.

Cons

  • Expensive: margins of several percent over Bank Rate, plus arrangement and exit fees.
  • Fees and rolled-up interest can cut the money that reaches the build well below the headline LTC.
  • Your equity takes the first loss if the build overruns or values fall.
  • Staged drawdowns, monitoring visits and reporting add time and cost.
  • Short terms leave you exposed if sales are slow or a refinance falls through.

Frequently asked questions

What is LTGDV?

Loan to gross development value: the loan as a percentage of the finished scheme’s value. One lender publishes a maximum of 70%; lenders set their own. Source: UK specialist development lender product page (CapitalRise)

What is LTC?

Loan to cost: the loan as a percentage of land, build and other costs. Published maximums run from LTC Up to 85% to MAX LTC: 90%. The lower of the LTGDV and LTC caps usually applies. Source: UK specialist development lender product page (CapitalRise); UK specialist lender development loan page (London Credit)

Do the caps include fees and interest?

Lenders do not always say. If the caps are gross, the fees and rolled-up interest come out of the loan and less of it pays for land and build. Ask your lender whether each cap is gross or net.

How much equity do I need?

At 85–90% loan to cost you fund at least 10–15% of costs, and more once fees and interest are deducted. The National Housing Bank asks for Typically 20% (can be 10% for strategic schemes). Source: gov.uk

What does development finance cost?

A margin over Bank Rate, such as 5.75% (over BoE base rate) at one lender, plus arrangement fees of 1–2% and sometimes a 1% exit fee. Monitoring, valuation and legal costs are extra. Source: UK specialist development lender product page (CapitalRise)

How long are the loans?

Usually 6 to 24 months and up to Max. 36 months. The National Housing Bank typically lends for 3 years. Source: UK specialist lender development loan page (London Credit); UK specialist development lender product page (CapitalRise)

Is interest paid monthly?

Usually not. It is Retained or Rolled-up and repaid at the end. At the National Housing Bank it is capitalised quarterly. Source: UK specialist lender development loan page (London Credit); gov.uk

Is there government help for small housebuilders?

Yes. The National Housing Bank lends £250,000 to £200 million directly on schemes of 5 or more homes, and the ENABLE Build guarantee supports some lenders’ development lending. Source: gov.uk

Sources

Checked on 19 October 2026. Lender and provider pages are cited as evidence of what one firm publishes, not as recommendations.

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