Property Development Finance

 Whether you’re a seasoned property developer or a newcomer to the field, understanding the nuances of financing is crucial for success. In this guide, we unravel the complexities of Property Development Finance, offering insights, strategies, and expert advice to empower you on your development journey.

As you delve into the world of property development, let this guide be your trusted companion, providing the knowledge needed to make informed decisions and achieve your development goals. 

Engaging in property development, whether for resale, investment purposes, or personal residence, presents an excellent opportunity to generate income or ascend the property ladder. In the realm of UK real estate development, costs can be substantial, and aspiring developers often face challenges in acquiring ample upfront funds.

Thankfully, a solution exists – development finance offers specialised loans tailored for acquiring land and covering expenses such as payments to the builder and electrician. 

Property Development Finance refers to a specific type of financial arrangement designed to fund the various stages of a property development project. Property development involves activities such as acquiring land, obtaining necessary permissions, construction, and ultimately either selling the developed property for a profit or retaining it for rental income.

Property Development Finance provides developers with the necessary capital to cover the costs associated with these stages. This type of financing is structured to accommodate the unique and often phased nature of property development projects. Developers can use the funds to purchase land, finance construction or renovation, and address other expenses related to the development process.

Lenders offering Property Development Finance typically assess the viability of the project, the experience and track record of the developer, the value of the land, and the projected end value of the completed development. The loan may be structured in stages, with funds released at different milestones of the project. The repayment of the loan is often expected either through the sale of the developed property or by refinancing with a more traditional mortgage once the project is completed.

Property Development Finance is a specialised form of financing that caters to the unique needs and challenges of property developers, providing them with the necessary financial support to bring their projects to fruition.

The Development Finance Process Unveiled

Embarking on a development finance deal involves several pivotal steps, and a standard transaction unfolds as follows:

  • Initial Enquiry: Seek free advice and initiate the process with an initial enquiry. The formal application is submitted to lenders when the timing is optimal.
  • Agreement in Principle: The lender provides an agreement in principle, offering an indication of the terms and conditions associated with the potential loan.
  • Due Diligence: The lender engages in due diligence, which may encompass a site visit and valuations to assess the feasibility of the project.
  • Projected Future Value: Evaluate the projected future value of the development, a crucial step in determining the viability of the project.
  • Formal Loan Offer: The lender extends a formal loan offer, which is accepted by the borrower to proceed with the financing arrangement.
  • Documentation and Contracts: Lawyers create necessary documentation, and all parties involved proceed with the exchange of contracts.
  • Completion and Initial Drawdown: The completion stage involves the first drawdown of funds, typically directed towards acquiring land or commencing construction.
  • Additional Drawdowns: Subsequent drawdowns occur to fund ongoing construction costs as the project progresses.
  • Loan Repayment: Repayment of the loan usually takes place upon the sale of the completed development or through refinancing.

Navigating the documentation process is a vital aspect. While lenders often require a comprehensive set of documents from borrowers during the application, our team strives to simplify this procedure for clients. Organising essential details enhances the likelihood of securing successful project funding. Key documentation includes:

  • Details of planning permission and related drawings
  • Information on planning restrictions or levies impacting project profitability
  • A comprehensive breakdown of all project costs
  • Details of the borrower’s development experience and examples of prior projects
  • Schedule of works organised by project phases
  • Information on architects, contractors, etc.
  • List of the borrower’s current assets and liabilities, alongside projected expenditures during the project’s lifespan
  • Proposed exit strategy
  • Projected gross development value, providing insight into the anticipated value upon completion

While experience is often favoured by lenders, even first-time developers have viable options. Connect with one of our Commercial Finance Managers for a comprehensive understanding of the available options tailored to your situation.

Finance options for property development

Embarking on a property development journey in the UK is an exciting venture, but it often comes with the challenge of securing the right financial resources. Whether you’re eyeing a residential project, a commercial development, or a strategic refurbishment, understanding the diverse finance options available is key to turning your vision into reality.

In the realm of property development, Development Finance Loans stand out as a bespoke solution. Tailored for various project stages, from acquiring land to covering construction costs, these loans offer a lifeline to developers facing financial constraints. Expect staged payments that align with your project milestones, making repayment a seamless process upon completion.

Commercial Mortgages cater to those eyeing commercial property development – be it retail spaces, offices, or mixed-use developments. Secured against the commercial property, these loans provide terms suited to the income potential of the space, offering a strategic financing avenue for ambitious ventures.

Picture this: you need funds swiftly, and time is of the essence. Enter Bridge Loans – short-term financial heroes designed to bridge gaps in property development financing. While they might carry higher interest rates, their quick approval process makes them invaluable for time-sensitive projects.

If your financial needs surpass traditional debt limits, Mezzanine Financing might be your answer. Positioned between equity and debt, this option combines a loan with an equity component, providing the flexibility and additional capital required for ambitious property projects.

Joining forces with other investors through Joint Ventures can amplify your project’s potential. By pooling resources and sharing both risks and rewards, this collaborative approach can unlock opportunities that might be challenging to pursue alone.

In the dynamic world of property development, Equity Financing invites investors to become stakeholders in your project. By selling ownership stakes, you not only raise capital but also share the success of your venture. It’s an attractive option when seeking to minimise debt exposure.

The UK government incentivises certain types of property development through grants and subsidies. Whether it’s affordable housing or urban regeneration, exploring these government programmes could provide the financial boost your project needs.

Development Finance Examples

Borrowing Capacity & Interest Rates

Development loans commence at a minimum of £200,000, with different lenders having distinct maximum limits. Our team of specialists can furnish you with alternatives stretching up to £50 million.

Curious about interest rates? The APR for development loans typically ranges between 7% and 15%. However, given the short-term nature of these loans, the significance of the interest rate pales in comparison to other factors. Considerations like total deal costs (including fees) and loan covenants (the terms and conditions imposed by lenders) often take precedence for borrowers. 

Our team of Commercial Finance Managers is here to steer you through the array of options. Keep in mind that the most economical rate might not necessarily translate to the most competitive overall deal. Trust our experts to help you navigate the intricacies of property development finance.

Apply for a bridging loan online

How does it work?

The whole process can be completed electronically, without you having to speak to us on the phone – although you’re welcome to at any point if you have any questions.

1.) Apply online

We collect all of the information necessary to provide you with asset finance indicative terms within 24 hours.

2.) We email your options

Once we’ve found you the best rates, we’ll email you with all of your options and give you time to decide.

3.) We arrange your finance

When you’re ready to proceed, we’ll arrange your agreement ready to sign and the funds will follow as soon as possible.

Fees and Expenses

Navigating the World of Fees and Expenses in Property Development Finance

Ever wondered about the fees and additional costs involved in development financing? Well, they can vary based on the specifics of each loan and the unique circumstances surrounding the deal. Here’s a breakdown of the typical fees associated with development financing:

  1. Lender Arrangement Fee: This fee comes directly from the lender for providing the necessary finance to kickstart your development project.
  2. Broker Arrangement Fee: Charged by the broker who played the role of intermediary between you and the lender. This fee may also cover any other professionals involved in facilitating the deal.
  3. Monitoring Surveyor Fees (Quantity Surveyor Fees or QS): These costs ensure ongoing professional surveyor oversight throughout the development. This oversight is crucial for compliance with building regulations and deal covenants throughout the loan term.
  4. Exit Fees: Applied when the loan is successfully paid off, exit fees represent a closing chapter in your development financing journey.
  5. Legal Fees: Covering the costs of legal professionals involved in the deal, these fees ensure that all legal aspects are thoroughly examined and addressed.
  6. Non-Utilisation Fees: Interest is typically charged only on the drawn sum from the loan pool. Some lenders may additionally impose a non-utilisation fee to compensate for funds made available but left unused, not earning interest.
  7. Management/Admin Fees: Covering office expenses and fees associated with managing the loan, these costs contribute to the smooth administration of your development financing.

Understanding these fees is pivotal as you embark on your property development journey. Our team is here to guide you through the intricate terrain of development financing, ensuring you make informed decisions that align with the specific needs of your project.

Can I get development funding with bad credit?

Embarking on a property development venture is a thrilling journey, but what happens if your credit history isn’t as pristine as you’d like it to be? The good news is that securing development funding with bad credit is indeed a possibility. Let’s delve into the nuances of this scenario and explore avenues to turn your property development dreams into reality.

Traditional lenders often scrutinise credit history as a primary factor when assessing loan eligibility. However, the landscape is evolving, and alternative financing options are emerging to accommodate individuals with less-than-ideal credit scores.

Specialised lenders understand that bad credit doesn’t necessarily define your ability to undertake a successful development project. These lenders evaluate applications with a more holistic approach, considering factors beyond credit scores. While interest rates may be adjusted to reflect the perceived risk, the focus is often on the value of the property and the viability of the project.

One key strategy to enhance your chances of securing development funding with bad credit is to present a robust and well-thought-out development plan. Clearly outline your project, including the scope, timelines, and potential returns. Demonstrating a sound business strategy can instil confidence in lenders, offsetting concerns related to credit history.

Offering collateral, such as the property itself, can significantly strengthen your loan application. Specialised lenders may be more willing to extend funding when there’s tangible security involved. Additionally, a lower loan-to-value (LTV) ratio, representing a smaller percentage of the property’s value, may make your application more attractive.

Navigating the terrain of development funding with bad credit can be complex. Enlisting the assistance of financial advisors or mortgage brokers who specialise in challenging credit situations is a wise move. These professionals can help you explore tailored options, understand the terms and conditions, and identify lenders willing to work with your unique circumstances.

While bad credit may present hurdles, it doesn’t have to be a roadblock to your property development aspirations. Specialised lenders, a compelling development plan, and professional guidance can collectively open doors to development funding, even with a less-than-perfect credit history. Remember, the key lies in presenting a strong case that showcases the potential success of your project. So, roll up your sleeves, polish that development plan, and let’s turn your property development vision into a reality!

Is it necessary to have planning permission secured?

Absolutely. Prior to extending a formal offer of finance and initiating legal due diligence through solicitors, the majority of lenders require evidence of full planning permission. It’s worth noting that certain specialised lenders might commence legal due diligence with outline planning permission. However, they typically disburse the loan only after obtaining the complete planning consent.

Is it possible to secure funding as a novice?

Certainly. While obtaining funds may pose challenges for those new to property development, there are avenues available. Niche funders may provide financing, or mainstream lenders might be open to it if the first-time developer collaborates with an experienced counterpart to jointly oversee the project.

Guidelines for Success

Even seasoned property developers can find themselves entangled in loss-making ventures, underscoring the importance of meticulous consideration, especially for first-timers or those with minimal experience. Here are essential tips to ponder before diving into the funding application process:

Evaluate the Development:

  1. Market Presence: Assess the property’s history. Has it lingered on the market, and if so, why? Uncover any potential issues with the property or its seller.
  2. Budgetary Discipline: Determine what you can realistically afford for both the property or land. Establish and adhere to a budget to avoid financial strain.
  3. Construction Costs: Delve into the estimated building expenses. Does it align with your budget? Uncover any concealed issues that could escalate costs unexpectedly.
  4. Reliability of Partners: Vet the reliability of architects and contractors rigorously. Seek references and consult with reputable suppliers to ensure a trustworthy team.
  5. Contingency Planning: Factor in a contingency for unforeseen emergencies or budget overruns. Preparedness is key in navigating the uncertainties of property development.
  6. Project Viability: Assess the projected value of the completed project. How does it compare to similar developments in the vicinity? Gauge the demand for this type of development in the local market.
  7. Target Audience: Define your target buyer and ascertain their likely interest in the development. Consider potential competition and whether you are entering a saturated market.
  8. Profit Projection: Determine your projected profit and the expected project completion date. A comprehensive financial forecast is vital for demonstrating project viability.

Preparing for Funding:

  1. Credit Assessment: Evaluate the strength of your credit. Check your credit score and rectify any errors by contacting credit reporting agencies promptly.
  2. Document Submission: Ensure all requested paperwork is provided in full. Missing documents can lead to funding delays and potentially jeopardise the acquisition of the intended land or property.
  3. Financial Preparedness: Assess your financial standing. Confirm whether you can afford a cash deposit or possess collateral, such as real estate, to offer as supplementary security.

By thoroughly addressing these considerations, you position yourself for a more informed and successful approach to lenders for property development funding. This strategic groundwork not only enhances your chances of approval but also sets the stage for a well-managed and profitable development venture.

Settling the Loan

Typical avenues for repaying a development loan include:

Sale Proceeds: Utilise the earnings from the completed development to settle the entire loan amount.

Loan Refinancing: Opt for refinancing with a new, extended-term loan. This is a suitable choice for borrowers intending to retain or lease the finished development.

Development Exit Bridging Loan: Explore refinancing through a development exit bridging loan. These exit loans typically offer lower interest rates, allowing you to preserve maximum profit. This approach eliminates the need to wait for the property’s sale to fully repay the development loan.

Development Exit Finance

Typical avenues for repaying a development loan include:

Sale Proceeds: Utilise the earnings from the completed development to settle the entire loan amount.

Loan Refinancing: Opt for refinancing with a new, extended-term loan. This is a suitable choice for borrowers intending to retain or lease the finished development.

Development Exit Bridging Loan: Explore refinancing through a development exit bridging loan. These exit loans typically offer lower interest rates, allowing you to preserve maximum profit. This approach eliminates the need to wait for the property’s sale to fully repay the development loan.


  1. What is Property Development Finance, and how does it differ from traditional mortgages?

Property Development Finance is specifically designed to fund the various stages of a development project, including land acquisition and construction. Unlike traditional mortgages, it considers the phased nature of development and is tailored to the unique needs of developers.

  1. What types of projects qualify for Property Development Finance?

Property Development Finance can be used for a range of projects, including residential and commercial developments, refurbishments, conversions, and even infrastructure projects. The key is to demonstrate a viable and well-planned project.

  1. How much can I borrow with Property Development Finance?

Borrowing limits vary, but development loans can start from £200,000 and go up to £50 million, depending on the lender and the specifics of your project.

  1. What interest rates can I expect with Property Development Finance?

Interest rates typically range from 7% to 15% APR. However, it’s crucial to consider other factors like overall deal costs and loan covenants, as they can impact the competitiveness of the financing.

  1. What fees and costs are involved in Property Development Finance?

Fees can vary based on the loan and circumstances. Common fees include lender arrangement fees, broker arrangement fees, monitoring surveyor fees, exit fees, legal fees, non-utilisation fees, and management/admin fees.

  1. Can I secure Property Development Finance with bad credit?

Yes, it’s possible. Specialized lenders may consider factors beyond credit history, focusing on the property’s value and the viability of the project. A strong development plan and collateral can also enhance your chances.

  1. What is a loan-to-value (LTV) ratio, and how does it impact my loan application?

The LTV ratio represents the loan amount relative to the property’s value. A lower LTV ratio can make your application more attractive to lenders, potentially increasing your chances of approval.

  1. How does the repayment of Property Development Finance work?

Repayment is often expected upon project completion, either through the sale of the developed property or refinancing with a more traditional mortgage. Some loans may have staged payments aligned with project milestones.

  1. Is joint venture financing a viable option for property development?

Yes, joint ventures involve partnering with other investors to pool resources and share risks and rewards. This collaborative approach can be beneficial for larger projects or those requiring additional capital.

Understanding the ins and outs of Property Development Finance is crucial for a successful project. If you have more questions or need tailored advice, our team of experts is here to guide you through the process.