How to finance a property development

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.

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.

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.

1. 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.
2. 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.
3. 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

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.

Property development funding options

Several kinds of finance sit around a development, and they solve different problems at different points in the scheme. The table below compares the main options, who each one suits and the stage where it usually fits. We place each scheme with the funder whose appetite matches it, rather than lending ourselves.

The right choice depends on where the scheme is and how much of your own cash you want to commit. These options often combine on one deal, with senior development debt at the core, a mezzanine or joint venture layer lifting the leverage, and an exit facility taking over at the end. All figures and structures are illustrative and not an offer of finance.

How development finance works, step by step

Development finance follows a set sequence from buying the land to repaying the loan. Working through the steps in order is the clearest way to see how the money is released and where the exit has to be planned.

1. Land: a first drawdown funds the land purchase, sized on the land value and conditional on planning permission being in place or close to it.
2. GDV appraisal: the lender and a RICS valuer confirm the gross development value and total cost, and the loan is capped on loan to GDV and loan to cost so the facility sits inside both the value and the cost.
3. Drawdowns against build stages: build costs are released 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 advanced.
4. Practical completion: when the build finishes the development loan reaches its maturity, the interest that has rolled up falls due, and the scheme becomes a finished, standing asset.
5. Exit: the loan is repaid by selling the units, refinancing onto longer-term investment or buy-to-let debt, or moving onto a development exit facility while the sales run.

The monitoring surveyor is central to the middle steps: drawdowns are released against verified progress, not invoices alone, which protects both the lender and the developer from a half-funded site. We arrange the facility across these steps and line up the exit before completion so the plan runs through to repayment.