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How Does Property Development Finance Work?

The availability of a development site, an original design, or high-quality workmanship are frequently less important to achieving equitable and flexible financing than they are to the success of the build project.

Finding the right size loan that is flexible and reasonably priced can be difficult at the best of times because development projects require a unique and niche form of financing that most lenders do not offer. Prior to the need for materials or wages to be paid, funds must be quickly available but not sitting idle in the bank accruing interest.

The basics of Development Finance, its purposes, and how to obtain it will all be covered in this guide.

The Following Topics Are Covered

What Is Development Finance?

A property loan called Development Finance aids developers in paying for the construction of a development project and typically lasts between 6 to 24 months.

The Development loan is available against investment residential, mixed-use, or commercial property as well as ground-up constructions which can include demolition and rebuilding an entire structure.

A project's scope can range from a single build to numerous site units.

What Are The Key Features Of Development Finance?

  • Finance starting from £100,000

  • Short-term options from 3 months

  • Rolled-up interest or serviced interest

  • Staged drawdown (to make a build project's progress easier)

Most lenders are reluctant to take into account borrowing requirements of less than £100,000 because these are complicated funding arrangements to set up and manage.

What Are The Main Uses for Development Finance?

The three main applications of development finance are listed below; we will go into more detail about each later:

  • Refurbishing or developing an existing property

  • Ground up Developments

  • Rebuild a Property After It Has Been Demolished

Refurbishing Or Developing An Existing Property

There are a few ways to raise money for your development plans if you already own your property.

Loans for renovation or refurbishment are frequently used to make minor or significant improvements to an existing property


Light renovations typically don't need planning permission or regulatory approval and can range from simple decorating to a new kitchen or heating system.

Significant structural changes, property additions, or conversions that call for planning permission are likely to be the subject of extensive refurbishments.

Ground up Development

You'll need to have your plans clearly laid out so you can draw down at the appropriate times throughout your project because securing ground-up development financing is a more difficult and time-consuming process.

This schedule must be accepted by an independent surveyor, who will work with you throughout the loan term.

Rebuild a Property After It Has Been Demolished

A knock-down rebuild project could significantly raise the value of your asset if the majority of its value is in its location relative to the building itself.

It is expensive to demolish an old, dilapidated structure and replace it with a contemporary structure with all the fixtures, but the realized value can far outweigh the expenses.

However, it makes sense that most lenders aren't too excited about the idea of you demolishing a home and rebuilding it.

There are a lot of risks involved. Your new home might not generate enough income to cover the interest accrued on your loan. There are also endless amounts of uncontrollable variables from the weather to the availability of building materials or contractors.

How Do Interest Payments Work?

Lenders will usually roll up the interest and staged drawdowns. What is the difference between both?

Rolled up interest

At the end of your term, lenders typically want to see the interest that is still owed on your loan rolled up into the total loan amount.

As a result, you won't have to worry about making additional interest payments throughout the loan period, allowing you to use all of your money for your construction and maintain the project's schedule.

Funds are made available as and when they are needed, making it the most advantageous feature of development finance. As a result, clients don't have to pay interest on undrawn-down loans.

Staged Drawdown

A development loan's staged drawdown enables you to only take out small amounts of money as needed for your project.

For the majority of your project, you won't be paying interest on the full amount you agreed to borrow; only what you've drawn and actually spent so far will be charged interest.

How Do The Repayments Work in Development Finance?

A development loan's exit strategy is decided upon up front, and repayment is paid

in one of two ways:

  • Sale of the Property

  • Mortgage Finance

Developers frequently use the money from the sale of the first units on multi-unit projects to partially finance the pricey finishing touches of later units( fitting bathrooms and kitchens and finishing landscaping work).

The final unit(s) will then be sold, and they will receive their profit.

Professional developers, on the other hand, need money to buy their upcoming development site and move through the planning stage in order to get their next project started as soon as possible.

You might want to use development exit finance to get access to money before your previous project's final sales are finished.

An experienced broker takes into account all of your project's circumstances as well as your level of development management expertise.

For instance, if it's appropriate, they'll put you in touch with a lender who is willing to extend the term of your loan so that you can sell the property for its full market value.

If you are unable to meet the deadline for the agreed-upon term, we don't work with lenders who will quickly switch you to a negative interest rate.

How Much Can I Borrow With Development Finance?

After a valuation report is received on behalf of the lender, the following will be determined:

  1. Current Value: The value of the site with planning permission or value before refurbishment.

  2. Build Costs

  3. GDV (Gross Development Value): What the market value is projected to be after works have been finished

The majority of lenders work within 50% to 65% Loan to GDV (LTGDV), However, we have access to lenders who can go up to 70% LTGDV on Development projects.

We offer a free consultation and development build appraisal to help establish whether the project makes sense.

What If I'm A First Time Developer?

Without any prior experience, obtaining funding will be more challenging but not impossible.

Here are some tips on securing finance for a first-time developer:

  • An accomplished architect, builder, and project manager who can each demonstrate a history of reasonable costings should be on your side.

  • Possibly applicable experience from your own work, such as that of an architect or project manager

  • If the site is already owned and has planning permission, a sub-50% loan to value is possible.

  • Obtaining a fixed-price agreement with your contractors prior to starting the build of refurbishment

  • On finance agreements with first-time or less experienced developers, the majority of lenders will include step-in rights.

What Are The Risks During a Development Project?

The most typical problems we encounter in development projects are listed below:

  • Quantity surveyors who are not specialists in building techniques and modular components

  • Developers incurring additional costs and changing their plans in the middle of the project

  • Material delivery hold-ups are causing significant delays.

  • IMS site inspections are not given enough notice by site managers.

Using An Experienced Broker

On development projects ranging in price from £100K to £25M, Accelerated Finance has a network of satisfied developer clients for whom we have secured dependable, affordable, and flexible funding.

We collaborate with both seasoned industry players and inexperienced developers. We examine every aspect of your project and provide advice on the most practical and affordable funding options.

To discuss your development plans in detail, call us at a convenient time.


This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.

Accelerated Finance Limited only considers applications for commercial or investment properties.

Accelerated Finance Limited is not regulated by the financial conduct authority and only provides unregulated loans via our network of lenders. Your property is at risk if you fail to make payments on a Mortgage Contract. Please note that Accelerated Finance Limited and its employees do not give financial advice or recommendations on any product.

Author: Aakash Nagrani - Director 

Aakash Nagrani Author
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