How to finance a property development
Financing a property development means lining up the right debt for each stage, from buying the land through the build to selling or refinancing the finished scheme. This guide walks the full development finance lifecycle and shows where development exit finance sits at the end.
To finance a property development you arrange a development finance facility that funds the land purchase and the build costs in staged drawdowns, sized against the gross development value (GDV) and the total cost of the scheme. Lenders cap the loan on loan to GDV, indicatively up to around 70 percent, and on loan to cost, often up to 90 percent of costs, with the developer funding the remaining deposit and equity. The facility runs through the build and is repaid at the end by selling units or refinancing, and where a finished scheme needs more time to sell, a development exit facility replaces the development loan at a lower rate. DevExit arranges this finance; it does not lend, and the lending arranged is unregulated commercial debt.
At a glance
- What it fundsLand purchase and build costs
- Sized onGDV, loan to cost and loan to GDV
- Loan to GDVIndicatively up to 70 to 75 percent
- Loan to costOften up to 90 percent of costs
- Drawn asStaged drawdowns through the build
- Repaid byUnit sales, refinance or an exit bridge
How property development finance works
Property development finance is short-term, project-based debt that funds a scheme from the land purchase through construction to a finished, saleable building. It is not a mortgage and it is not a standard bridging loan. A residential mortgage is sized on a finished home and a borrower's income; a development finance loan is sized on the scheme's economics, advanced in stages against measured progress, and repaid in months rather than decades. A plain bridging loan funds a quick purchase or a gap, while a development loan funds an active build with costs drawn down as the works proceed.
The lender advances a first tranche to help acquire or refinance the land, then releases build costs in staged drawdowns as the construction progresses. Interest is usually rolled up rather than paid monthly, because a building site produces no income. The whole facility falls due at or shortly after practical completion, when the finished units are sold or the scheme is refinanced. DevExit arranges these facilities as an introducer; we do not lend, and the finance is unregulated commercial lending outside the regulated mortgage perimeter.
The market runs from high street banks such as NatWest, which fund development for established relationship clients, through specialist development lenders such as OakNorth and Shawbrook Bank, to brokers and fintech marketplaces such as Clifton Private Finance and Brickflow that place schemes with the right funder. Legal structuring, often through a special purpose vehicle (SPV), is handled by firms such as Harper James Solicitors, and self-build routes by lenders such as BuildStore. We place each scheme with the funder whose appetite fits it.
Sizing the loan with GDV, loan to cost and loan to GDV
A development lender sizes the loan on three numbers. Gross development value (GDV) is what the finished scheme is expected to sell for or be worth once let, confirmed by a RICS valuation. Total cost is the land plus the build costs plus fees and finance. The loan is then capped by two ratios at once: loan to cost (LTC), the loan as a percentage of total cost, and loan to GDV (LTGDV), the loan as a percentage of the end value. The lender advances the lower figure the two caps allow, which keeps the loan inside both the cost and the value.
| Measure | What it means | Indicative cap |
|---|---|---|
| Gross development value (GDV) | End value of the finished scheme | Set by RICS valuation |
| Loan to GDV (LTGDV) | Loan as a percent of end value | Up to about 70 to 75 percent |
| Loan to cost (LTC) | Loan as a percent of total cost | Often up to 90 percent of cost |
| Loan to value (LTV) | Loan against the land value | Used on the land tranche |
| Developer equity | Deposit and cash the developer puts in | The balance of cost not lent |
Because the loan is capped on both cost and value, the developer funds the difference as a deposit and equity contribution. On a typical scheme that means putting in the land deposit and a share of the build, with senior debt covering the rest. Where a sponsor wants to put in less of their own cash, mezzanine finance or stretched senior can sit behind the senior debt to lift the total funding, at a higher rate and behind the senior lender. These figures are illustrative and not an offer of finance.
The finance lifecycle from land to build to exit
A development is financed in three stages, and the debt changes shape across them. Understanding the sequence is how to finance a property development without running out of road at the end.
- Land acquisition: a first drawdown funds the land purchase, sized on the land value and conditional on planning permission being in place or close to it. Land without planning is funded more cautiously than a consented site.
- Build costs: the lender releases build costs funding in staged drawdowns, each one signed off by a monitoring surveyor who inspects the site and confirms the works are done before the money is released.
- Exit: at practical completion the development loan falls due. The scheme is repaid by selling the units, refinancing onto investment or buy-to-let debt, or moving onto development exit finance while the sales run.
Senior debt is the core layer that runs through all three stages. Where the senior lender will not reach the leverage a sponsor needs, mezzanine finance fills the gap between the senior loan and the equity, and bridging finance can cover a short land purchase before the main facility completes. The monitoring surveyor is central to the build stage: drawdowns are released against verified progress, not against invoices alone, which protects both the lender and the developer from a half-funded site.
What development finance costs
Development finance carries several costs beyond the headline rate, and they should all be modelled into the GDV appraisal so the profit survives them. Interest is usually rolled up, meaning it is added to the loan and settled at exit rather than paid monthly, which protects cash flow while the site earns nothing but compounds on a rising balance. On top of interest sit an arrangement fee at the start and often an exit fee at the end, plus the cost of the RICS valuation, the monitoring surveyor and the legal work.
- Interest, usually rolled up and settled at exit rather than serviced monthly
- Arrangement fee, charged on the facility at the outset
- Exit fee, charged at repayment, sometimes as a percentage of loan or GDV
- RICS valuation and monitoring surveyor fees through the build
- Legal costs for the lender and the borrower, often via an SPV
- Deposit and equity, the developer's own cash funding the balance of cost
Lenders quote a gross loan and a net loan, or day-one advance. The gross loan is the full facility; the net loan is what reaches the developer on day one after the arrangement fee, the rolled interest reserve and other deductions are held back. The land tranche is paid from this net advance, so a developer should plan their deposit and equity around the net figure, not the gross headline. All figures here are illustrative and not an offer of finance.
Where a development exit bridge fits at practical completion
The riskiest moment in a development is the end, not the middle. The build is finished, the development loan is at or past its maturity, but the units have not all sold and the original facility was never priced to sit through a long sales period. This is where development exit finance comes in. A development exit bridge replaces the existing development facility at or near practical completion, once the build risk has gone, and because the scheme is now a finished, standing asset it is cheaper than the development loan it repays.
An exit facility is sized on the gross development value, indicatively up to around 70 to 75 percent of GDV, and runs for a typical term of 12 to 18 months covering the sales period. Interest is usually retained or rolled, so the developer is not servicing debt from sale proceeds that have not arrived yet. The exit is unit sales as the scheme sells down, or a refinance onto longer-term investment or buy-to-let debt where the developer keeps the units to let. We set out how a finished-scheme bridge works at /what-is-development-exit-finance/ and the costs at /development-exit-finance-costs/, with the wider process at /how-development-exit-finance-works/.
First-time developers and how we arrange the funding
A first-time developer can get property development finance, but the terms reflect the lack of a track record. Lenders look harder at the team around the developer, the contractor and the professional advisers, and they often hold the leverage lower or expect a larger equity contribution than they would from an experienced sponsor with completed schemes behind them. Planning permission in place, a credible build cost, an honest GDV and a clear exit strategy do more to win a first deal than any pitch. Specialist development lenders are usually more comfortable with a first-timer than a high street bank geared to larger, repeat clients.
DevExit arranges development finance across the lifecycle and lines up the exit before the build finishes, so the funding plan runs through to repayment rather than stopping at completion. We assess the GDV, the cost and the realistic sales period, structure the senior debt and any mezzanine layer, and place the facility with the funder whose criteria fit the scheme and the developer. Most often we are introduced at the end, to arrange a development exit bridge that repays a maturing development loan and buys time for the sales to run. We are an arranger and introducer, not a lender, and the finance we arrange is unregulated commercial lending.
How to finance a property development: common questions
How does property development finance work, and how is it different from a mortgage or a bridging loan?
Development finance funds a build in staged drawdowns, sized on the scheme's GDV and total cost and repaid at completion by selling or refinancing. A mortgage is sized on a finished home and the borrower's income over decades; a bridging loan funds a quick purchase or a gap. A development loan funds the active construction, with interest rolled up and each drawdown released against a monitoring surveyor's sign-off.
How much can I borrow, and how do lenders use GDV, loan to cost and loan to GDV?
Lenders cap the loan on two ratios at once. Loan to GDV limits the loan against the finished value, indicatively up to around 70 to 75 percent, and loan to cost limits it against total cost, often up to 90 percent. The lender advances the lower figure the two caps allow, so a scheme with a strong end value still cannot borrow past its cost ceiling. These are indicative figures, not an offer of finance.
How much deposit, cash or equity do I need to fund a development?
You fund the difference between the loan and the total cost, which is the deposit on the land plus a share of the build. With senior debt covering most of the cost, the equity is typically the balance not lent. Mezzanine finance or stretched senior can reduce the cash you put in, sitting behind the senior debt at a higher rate, but you will still contribute meaningful equity.
What does development finance actually cost: interest, fees and the monitoring surveyor?
Interest is usually rolled up and settled at exit rather than serviced monthly. On top sit an arrangement fee at the start, often an exit fee at repayment, the RICS valuation, the monitoring surveyor who signs off each drawdown, and legal costs. Model all of these into the GDV appraisal, and plan your equity around the net day-one advance rather than the gross loan.
Can a first-time developer with no track record get property development finance?
Yes, though the terms reflect the lack of a record. Lenders look closely at the contractor and professional team, often hold leverage lower or expect more equity, and want planning permission, a credible build cost and a clear exit. Specialist development lenders are usually more comfortable with a first-time developer than a high street bank geared to larger repeat clients.
What is my exit strategy at the end of the build: selling, refinancing or development exit finance?
The development loan falls due at practical completion, so the exit is selling the units, refinancing onto investment or buy-to-let debt, or moving onto development exit finance while the sales run. A development exit bridge replaces the development facility at a lower rate once build risk has gone, is sized up to around 70 to 75 percent of GDV, and runs 12 to 18 months covering the sales period.
Exiting a completed scheme?
Send us the scheme and the gross development value and we will come back with a view on fundability and likely terms within one working day.