First time property developer finance

Can a first-time developer raise development finance?

Yes. First time property developer finance exists, and specialist development lenders fund no-track-record applicants every week. What changes for a first-timer is not whether finance is available but how it is priced and structured. A lender without a completed scheme to look at treats the missing experience as a risk, and it manages that risk through the loan size, the equity it asks for and the mitigants it requires around the build. The deal still works; it is simply built more conservatively than one for a developer with ten completions behind them.

The lenders active here are challenger banks, specialist development and bridging lenders, private debt funds and, at the larger end, JV and equity funders. DevExit arranges and places first-time development finance across these lender types. We are an arranger and introducer, not a lender, and the finance we arrange is unregulated commercial lending that sits outside the FCA regulated perimeter.

How lenders assess a no track record application

A lender reading a first-time application is trying to answer one question: who is actually going to deliver this scheme on budget and on time. Because the applicant cannot answer that with their own completed projects, the lender looks to the wider team and the numbers. The assessment usually turns on the points below.

• The professional team, above all whether an experienced main contractor with a relevant delivery record is appointed to build the scheme
• Planning status, with detailed consent or full planning permission strongly preferred over outline or a site bought on hope
• Gross development value and margin, tested by an independent valuation, with a loan to GDV (LTGDV) cap that is typically held around 70 percent
• Loan to cost (LTC) and the day-one loan to value on the land, which set how much equity the developer must contribute at the outset
• The developer's own funds, credit history and any transferable experience, for example a trade, construction or property background
• A credible, evidenced exit, being a sale at the end or a refinance onto a term loan

None of these on its own carries the application. Together they let a lender fund someone with no completed schemes, because the experience gap is covered by the contractor, the margin cushion and the developer's equity rather than by a track record.

Mitigants that offset a first-timer's missing experience

The practical work in placing first time property developer finance is assembling the right mitigants so a lender can say yes. Each one addresses a specific worry, and stacked together they replace the comfort a track record would otherwise give.

• Experienced main contractor: a fixed-price build contract with a contractor who has completed comparable schemes, plus a monitoring surveyor or quantity surveyor (QS) signing off each drawdown
• Lower leverage: accepting a larger equity contribution and a bigger deposit, so the loan to cost and loan to GDV sit well inside the lender's ceiling
• Special purpose vehicle (SPV): holding the scheme in an SPV limited company, the structure lenders expect for clean security and a clean exit
• Personal guarantee: a personal guarantee from the director or directors, commonly for part of the facility, though some structures offer no-personal-guarantee options at lower leverage or with additional security
• Joint venture: bringing in a JV partner or JV development finance funder whose experience and capital carry the track-record requirement

Deposit, equity and the loan to GDV cap

Because most lenders cap first-time lending at around 70 percent of GDV and lend against a share of cost, a first-time developer needs meaningful equity. The two ceilings, loan to GDV and loan to cost, work together, and whichever bites first sets the advance. The worked example below is illustrative only and is not an offer of finance.

In this illustration the loan to GDV cap allows a larger figure than the build actually costs, so loan to cost becomes the binding constraint and the developer contributes the balance of cost as equity. A first-timer should expect to fund the land largely from their own money and to carry a real deposit, because so-called 100 percent development finance, where a funder covers all of the land and build in exchange for a profit share, typically 50/50, is joint venture (JV) finance reserved for experienced developers who can prove completed similar projects. The same applies to a 100 percent bridging loan structure used to buy below market value. Approaches that promise little or no deposit or building without using your own money almost always mean handing a funder a profit share, not free capital. These figures are illustrative and not an offer of finance.

Structuring the SPV, guarantees and drawdowns

First-time development finance is almost always advanced to a special purpose vehicle (SPV) limited company that holds the single scheme and nothing else. The SPV keeps the security clean and makes the eventual sale or refinance straightforward, which is why lenders expect it. Alongside it, the directors usually give a personal guarantee, commonly capped at part of the facility rather than the whole, and some lower-leverage structures can be arranged with no-personal-guarantee options where there is additional security.

1. Set up the SPV limited company and appoint the experienced main contractor on a fixed-price build contract.
2. Agree senior debt, and where the equity gap is wide, layer mezzanine finance behind it to lift total funding while keeping the developer's cash contribution manageable.
3. Draw the land tranche at completion of the purchase, funding site acquisition against the day-one loan to value.
4. Take staged drawdowns for build costs against a monitoring surveyor or quantity surveyor (QS) valuation, with interest rolled up rather than paid monthly.
5. Reach practical completion, then repay from sales or refinance the facility, providing sales or refinance evidence to redeem the loan.

Interest is typically rolled up, meaning it is added to the facility and settled at the end rather than serviced monthly, which protects cash flow during the build. Senior debt sits at the front of the security, and mezzanine finance, where used, sits behind it at a higher cost to bridge the gap between the senior cap and total cost. We structure each first-time case so the drawdown schedule, the guarantees and any mezzanine layer fit the scheme and the developer's equity.

From completion to a clean development exit

The exit is agreed before the loan is drawn, because it is how the facility is repaid and how the lender is persuaded a first-timer can finish cleanly. There are two routes, often combined. The first is a sale, where completed units are marketed and the proceeds redeem the development loan. The second is a refinance onto a term loan, where the developer holds and lets the scheme and moves it onto longer-term investment debt.

Where sales run slower than the development facility term allows, development exit finance bridges the gap. This is a short-term facility taken at or near practical completion that repays the development loan and gives the developer a calmer, usually cheaper, period to sell or refinance, because the build risk has gone. For a first-time developer it removes the pressure of a maturing development loan while the market absorbs the units. The facility is redeemed from the final sales or the term refinance, with sales or refinance evidence provided to close it out. You can read more on our pillar finance page at /finance/.

DevExit arranges and places first time property developer finance and the exit that follows it. We are a finance arranger and introducer, not a lender; the finance we arrange is unregulated commercial lending, and every figure we quote is illustrative and not an offer of finance.