Property Development Finance

If you’re considering a commercial or residential building project, property development finance can help cover the required costs without you needing to fund the entire project upfront. This guide explains how property development finance works, who may qualify, the typical costs and interest rates, and how to find expert support.

What is property development finance?

It’s a specialist form of commercial finance used to fund construction, refurbishment and property conversion projects.

Unlike a standard commercial mortgage, development finance is usually released in stages as the project progresses, rather than being provided as one lump sum.

UK property development finance may be suitable for projects including:

• Residential housing developments
• Commercial property developments
• Mixed-use or semi-commercial projects
• Property conversions and refurbishments
• Student accommodation or apartment developments

How does it work?

A typical property development finance arrangement generally works as follows:

1. Initial application: The lender reviews the project, estimated costs, planning permission and the developer’s experience.

2. Site purchase funding: An initial portion of the land or property purchase price is released.

3. Build stage drawdowns: Further funding is released at agreed construction milestones.

4. Monitoring: Surveyors inspect the development before additional funds are provided.

5. Project completion: Once finished, the property may be sold, refinanced or retained as an investment property.

6. Loan repayment: The loan is repaid through the sale or refinance of the completed development, in line with the agreed exit strategy.

Property development finance is normally arranged as a short-term lending facility, with terms commonly ranging from 6 to 24 months. It can be used to cover both the purchase of the site and the construction costs associated with the project.

Instead of providing the full amount upfront, lenders usually release funds in stages as work progresses. Similar to a self-build mortgage, these staged payments are often known as “drawdowns”.

Interest can often be rolled up into the loan, which means you may not need to make monthly interest payments during the construction phase.

Eligibility criteria for development finance

If you’re looking to secure finance for property development, lenders will usually consider several key factors when assessing your application:

• Developer experience: Developers with a strong track record may be able to borrow more money and access better rates or more favourable terms.

• First-time developers: Small property development finance can still be available, although lenders may ask for additional security, a larger deposit or experienced contractors to support the project.

• Planning permission: Most lenders prefer full planning permission, but some may consider projects with outline consent or permitted development (PD) rights.

• Project profitability: The lender will assess the expected gross development value (GDV), projected costs and anticipated profit margin.

• Deposit: Developers are normally expected to contribute part of the overall project costs. In some circumstances, however, it may be possible to arrange 100% financing.

• Exit strategy: A clear repayment plan is essential. This may involve selling the completed property, refinancing it or retaining it as a long-term investment.

• Build costs and timelines: Detailed construction budgets and realistic completion schedules can demonstrate that the project is achievable and help reduce the lender’s perceived risk.

• Credit profile: Your personal and business credit history may also be considered, particularly if you’re a first-time developer or undertaking a smaller project.

How to get property development finance

Finding the right property development finance can be challenging, as lenders often have different eligibility criteria and lending requirements. Applying to an unsuitable lender could delay the process or lower your chances of approval.

Working with a specialist development finance broker can simplify the process. An experienced broker can compare lenders across the market, identify finance options that match your project and help structure your application effectively, improving your chances of securing competitive rates and favourable terms.

If you’d like a free, no-obligation chat with a specialist broker, you can compare property development finance options and find a suitable lender for your project by getting started below.

UK property finance development lenders

While your specific development plans will ultimately determine which lenders are suitable, here are some examples of a few mainstream and specialist UK lenders that may consider property development finance:

• Royal Bank of Scotland (RBS): Could provide funding of £50,000 or more for residential property development with terms of up to 3 years.

• Oak North: Typically considers loans up to 55% of the GDV for property development finance. The minimum loan is £1 million, and the term can be up to 36 months.

• Paragon Bank: Development finance from Paragon can be used for a diverse range of projects, including care homes, light industrial schemes, pre-let commercial properties, and residential developments.

• NatWest: Open to property development finance for residential developers with a minimum borrowing amount of £50,000 for a term of up to 3 years. The finance must be on a variable interest rate, but you can repay your loan with no early redemption charges.

• Shawbrook Bank: Considers development finance applications for loans between £1 million and £30 million, with up to 85% loan-to-cost. Shawbrook also offers funding of up to 65% GDV for new build projects and up to 70% GDV for refurbishment developments.

Alternative types of commercial finance

Although development finance can be the most suitable solution for construction or refurbishment projects, there are alternative forms of commercial finance that may be worth considering, depending on your circumstances:

Property development finance rates

Rates can differ considerably depending on the lender, the level of risk involved and the developer’s experience. The main factors that can affect property development finance rates include:

• Loan-to-cost (LTC)

• Loan-to-gross development value (GDV)

• Developer track record

• Planning status

• Project complexity

• Exit strategy

• Property type

• Wider market conditions

Property development finance rates can change frequently. If you want an indication of current rates, a suitable approach is to ask an adviser to compare available options using some basic details about your project.

Frequently Asked Questions