If you’re building or converting property, development finance can provide the funding you need to bring your project to life. Unlike standard mortgages, this type of finance is tailored for developers, landlords, and investors tackling construction and refurbishment projects.
- What is Development Finance?
A short- to medium-term loan designed to fund:
- Ground-up developments (new builds).
- Conversions (e.g., office-to-residential).
- Refurbishments (light or heavy).
- Mixed-use projects (commercial + residential).
Funds are released in stages, linked to build progress, to ensure money is only paid as the project advances.
- How Does It Work?
- Initial Loan-to-GDV (Gross Development Value): Lenders will typically fund up to 60–70% of the end value.
- Drawdowns: Money is released in stages after a surveyor signs off progress.
- Interest: Usually rolled up and paid at the end of the project.
- Exit Strategy: Repayment comes from either selling the finished units or refinancing onto a long-term mortgage.
- Key Costs to Consider
- Arrangement and exit fees.
- Valuation and monitoring surveyor fees.
- Legal fees.
- Interest (often rolled up, not monthly).
💡 Tip: Always factor in a contingency budget (usually 10–15% of build costs).
- Who Uses Development Finance?
- Property developers building housing schemes.
- Investors converting commercial units into flats.
- Landlords upgrading rental stock with major refurbishments.
- Advantages
- Access to large sums for ambitious projects.
- Stage payments help manage cash flow.
- Can cover both purchase of land/buildings and build costs.
- Risks & Considerations
- Projects can overrun, and delays mean extra costs.
- Strict lender monitoring.
- Requires strong experience or a professional team.
- Best Practices for Success
- Have a clear, costed plan before applying.
- Use an experienced architect, contractor, and project manager.
- Be realistic with timelines and budgets.
- Always plan your exit route early (sale, refinance, or both).
Key Takeaway
Development finance is an essential tool for ambitious property investors and developers. With the right planning and professional advice, it can turn ideas into reality, helping you fund projects that standard mortgages simply won’t cover.
