What Is Development Finance?

Development finance is a short-term loan (typically 12-24 months) designed specifically for property development and refurbishment projects. Unlike standard mortgages or bridging loans, development finance is released in stages as your project progresses, ensuring you have funds available when you need them.

Key characteristics:

• Short-term:12-24 months (sometimes up to 36 months for larger projects)
• Stage-released:Funds released in tranches as work progresses (land purchase, groundworks, first fix, second fix, completion)
• Secured:Against the development site and sometimes additional security
• Interest:Usually rolled up (added to the loan balance) or retained from the facility
• Exit-focused:Lenders require a clear exit strategy (sale of units, refinance onto BTL mortgages, or other confirmed funds)

Understanding GDV and LTC: How Development Finance Is Calculated

Development finance lending is based on two critical metrics that determine how much you can borrow: Gross Development Value (GDV) and Loan-to-Cost (LTC). Understanding these figures is essential for planning your project and securing the right funding.

What Is Gross Development Value (GDV)?

Gross Development Value (GDV) is the estimated market value of your completed development project. It’s what your property or properties will be worth once the development is finished and ready to sell or refinance.

How is GDV calculated?

GDV is determined by a professional valuation based on:

• Comparable property sales in the area
• The type and quality of the finished development
• Current market conditions
• The property’s location and features

Example:

You’re planning to build 4 two-bedroom flats in Edinburgh. Comparable completed flats in the area are selling for £225,000 each.

GDV calculation: 4 flats × £225,000 = £900,000 GDV

This £900,000 is the estimated value of your completed project, and lenders will use this figure to determine how much they’re willing to lend based on a percentage of GDV.

Why is GDV important?

Lenders use GDV to assess:

• The viability of your project (will it be profitable?)
• The maximum loan amount they’re willing to provide
• The risk level (higher GDV relative to costs = lower risk)
• Your exit strategy (can you sell or refinance based on this value?)

What Is Loan-to-Cost (LTC)?

Loan-to-Cost (LTC) is the loan amount expressed as a percentage of your total project costs. It shows how much of your project the lender will fund versus how much equity (deposit) you need to provide.

What counts as “total project costs”?

Total project costs include:

• Land purchase price (or existing property purchase)
• Build costs (construction, materials, labour)
• Professional fees (architects, engineers, surveyors, planning consultants)
• Legal fees
• Lender fees (arrangement fees, valuation fees)
• Contingency (typically 10% of build costs)

Example:

Your development project costs:

• Land purchase: £200,000
• Build costs: £400,000
• Professional fees: £40,000
• Legal fees: £10,000
• Lender fees: £15,000
• Contingency: £35,000

Total project costs: £700,000

If a lender offers 70% LTC:

Loan amount: £700,000 × 70% = £490,000

Your equity required: £700,000 – £490,000 = £210,000 (30%)

Why is LTC important?

LTC determines:

• How much cash you need to bring to the project
• The lender’s risk exposure
• Your project’s financial structure
• Whether the project is financially viable for you

How Lenders Use GDV and LTC Together

Lenders calculate your maximum loan amount using both GDV and LTC, and they’ll lend you the lower of the two figures. This dual approach protects the lender by ensuring the loan is covered both by the project’s end value and by limiting their exposure to total costs.

Typical lending ratios:

• LTC (Loan-to-Cost):65-75% of total project costs
• LTV (Loan-to-Value):60-65% of GDV

Real-world example:

You’re developing a single property in Glasgow:

Project costs:

• Purchase price: £150,000
• Refurbishment costs: £100,000
• Professional fees: £15,000
• Lender fees: £8,000
• Contingency: £10,000
• Total costs:£283,000

GDV (completed value): £450,000

Lender’s maximum lending:

Option 1 – Based on LTC (70%): £283,000 × 70% = £198,100

Option 2 – Based on GDV (60%): £450,000 × 60% = £270,000

The lender will offer the lower figure: £198,100 (based on 70% LTC)

Your equity required: £283,000 – £198,100 = £84,900 (30%)

This means even though the GDV would allow a higher loan, the lender limits their exposure to 70% of your actual costs, ensuring you have significant equity in the project.

Why Lenders Use Both Metrics

LTC protects against cost overruns: If your project costs more than expected, the lender’s exposure is limited to a percentage of costs, not the full amount.

GDV protects against market changes: If property values fall during your project, the lender ensures the loan is still covered by the end value with a safety margin.

Together, they create a safety net: By using the lower of the two figures, lenders ensure they’re protected against both cost overruns and market downturns.

What This Means for Your Project Planning

1. Accurate cost estimation is critical

Under-estimating costs will leave you short of funds mid-project. Always include:

• Realistic build costs (get multiple quotes)
• Professional fees
• Contingency (10-15% of build costs)
• All lender and legal fees

2. GDV must be realistic and evidenced

Lenders require professional valuations or estate agent appraisals showing comparable sales. Inflated GDV figures will be rejected, limiting your borrowing.

3. You need significant equity

With typical LTC at 65-75%, you’ll need to provide 25-35% of total costs from your own funds. This could be:

• Cash savings
• Equity from other properties
• Joint venture partners
• Director’s loans

4. Profit margin matters

Lenders want to see a viable profit margin (typically 15-20% minimum). If your GDV is too close to your total costs, lenders may decline the application.

Example of a good profit margin:

• Total project costs: £500,000
• GDV: £650,000
• Gross development profit: £150,000
• Less finance costs (interest + fees): £50,000
• Less sales costs (estate agent, legal): £10,000
• Net profit:£90,000 (18% net margin on GDV)

This demonstrates a viable project with room for unexpected costs or market changes.

Types of Development Finance

Light Refurbishment Finance

Light refurbishments involve cosmetic changes to a property without structural alterations:

• Kitchen and bathroom replacements
• Rewiring and replumbing
• Redecorating and flooring
• Window and door replacements
• Landscaping and external improvements

Typical terms:

• Loan amount:£25,000 to £500,000
• LTV:Up to 75% of purchase price and refurbishment costs
• Term:6-18 months
• Interest rates:6% to 1.2% per month (7.2% to 14.4% annually)

Best for: Buy-to-let investors, property flippers, and small-scale developers looking to add value quickly.

Heavy Refurbishment Finance

Heavy refurbishments involve structural changes and typically require planning permission:

• Structural alterations (removing walls, adding extensions)
• Loft and basement conversions
• Change of use (commercial to residential)
• Major renovations requiring building regulations approval

Typical terms:

• Loan amount:£50,000 to £2,000,000+
• LTV:Up to 70% of purchase price and refurbishment costs (sometimes 75%)
• Term:12-24 months
• Interest rates:7% to 1.3% per month (8.4% to 15.6% annually)

Best for: Experienced developers undertaking significant property transformations.

Ground-Up Development Finance

Funding for building new properties from scratch on land you own or are purchasing:

• Single-unit new builds
• Multi-unit residential developments (2-50+ units)
• Commercial developments
• Mixed-use developments

Typical terms:

• Loan amount:£100,000 to £20,000,000+
• LTC:Up to 70% of total project costs (sometimes 75%)
• LTV (based on GDV):Up to 60-65% of completed value
• Term:18-36 months
• Interest rates:7% to 1.5% per month (8.4% to 18% annually)

Best for: Experienced developers with proven track records.

Permitted Development Finance

Funding for projects that fall under permitted development rights (no planning permission required):

• Converting commercial buildings to residential
• Adding additional storeys to existing buildings
• Agricultural barn conversions

Typical terms:

• Loan amount:£100,000 to £5,000,000+
• LTC:Up to 70% of costs
• Term:12-24 months
• Interest rates:7% to 1.3% per month

Best for: Developers capitalizing on permitted development opportunities.

Phased Development Finance

Funding for large developments completed in multiple phases:

• Large housing estates (50+ units)
• Commercial business parks
• Mixed-use developments

Typical terms:

• Loan amount:£1,000,000 to £20,000,000+
• LTC:Up to 65-70% of costs per phase
• LTV (based on GDV):Up to 60-65% per phase
• Term:24-48 months
• Interest rates:8% to 1.5% per month

Best for: Established developers with strong track records and experienced teams.

Development Exit Finance

What is Development Exit Finance?

Development exit finance is a bridging loan or short-term facility used to repay your development finance once construction is complete, giving you time to sell the units or refinance onto long-term mortgages.

Why do you need it?

Development finance typically has a fixed term (12-24 months). If your project completes on time but:

• Units haven’t sold yet
• BTL mortgage applications are still processing
• Market conditions mean you want to hold rather than sell immediately
• You need more time to achieve the best sale prices

Development exit finance gives you breathing room (typically 6-12 months) to execute your exit strategy without the pressure of immediate repayment.

Typical terms:

• Loan amount:Repays the outstanding development finance (capital + rolled-up interest)
• LTV:Up to 75% of completed property value (GDV)
• Term:6-12 months (sometimes up to 18 months)
• Interest rates:6% to 1.2% per month (7.2% to 14.4% annually)
• Arrangement fee:1-2%

Example:

You’ve completed a 4-unit new build development in Edinburgh. Total development finance outstanding: £600,000. Completed GDV: £900,000. You need 6 months to sell all units at optimal prices.

• Exit finance loan:£600,000 (67% LTV on £900,000 GDV)
• Term:6 months
• Interest rate:8% per month (serviced or rolled up)
• Monthly interest:£4,800
• Total interest (6 months):£28,800

You sell all 4 units over 6 months for £900,000, repay the £600,000 exit finance plus £28,800 interest, and retain the remaining proceeds.

When to consider development exit finance:

• Your development completes but units haven’t sold
• You want to refinance onto BTL mortgages but need more time
• Market conditions suggest waiting will achieve better prices
• Your original development finance term is expiring

How Development Finance Works

Stage 1: Land Purchase

You identify a development site. The lender provides funds to purchase the land (typically up to 70% LTC). You provide the deposit from your own funds.

Stage 2: Planning & Preparation

If planning permission is required, you obtain it. The lender may release a small tranche for professional fees (architects, surveyors, planning consultants).

Stage 3: Build Stages

Funds are released in stages as work progresses:

• Groundworks:Foundations, drainage, utilities
• First fix:Frame, roof, windows, first fix electrics/plumbing
• Second fix:Plastering, kitchens, bathrooms, flooring
• Completion:Final inspections, snagging, landscaping

Each stage requires a surveyor inspection and sign-off before the next tranche is released.

Stage 4: Exit

Once complete, you execute your exit strategy:

• Sale:Sell the completed units and repay the loan
• Refinance:Remortgage onto buy-to-let mortgages (if keeping as investments)
• Development exit finance:Bridge to give more time for sale or refinance

Development Finance Costs

Interest Rates

Typical range: 0.6% to 1.5% per month (7.2% to 18% annually)

Interest rates depend on:

• Project type and complexity
• Your experience as a developer
• LTC/LTV ratio
• Location and market conditions
• Exit strategy

Arrangement Fees

Typical range: 1.5% to 3% of loan amount

Example: £500,000 loan at 2% = £10,000 arrangement fee

Valuation & Monitoring Fees

• Initial valuation:£500 to £3,000+ (depending on project size)
• Monitoring surveyor fees:£300 to £1,000 per inspection (typically 4-6 inspections per project)

Legal Fees

Typical range: £1,500 to £5,000+ for lender’s solicitor fees (you’ll also have your own legal costs)

Exit Fees

Some lenders charge an exit fee (typically 1%) on repayment of the development loan.

Real Cost Example: Small Refurbishment Project

Project: Single property refurbishment in Dundee

Total project costs:

• Purchase price: £80,000
• Refurbishment costs: £40,000
• Professional fees: £4,000
• Legal fees: £2,000
• Lender fees: £2,000
• Contingency: £4,000
• Total costs:£132,000

GDV (completed value): £180,000

Lender’s calculation:

LTC option (70%): £132,000 × 70% = £92,400

GDV option (60%): £180,000 × 60% = £108,000

Loan offered: £92,400 (lower of the two)

Your equity contribution: £132,000 – £92,400 = £39,600 (30%)

Loan terms:

• Term:9 months
• Interest rate:9% per month (rolled up)

Finance costs:

• Interest (rolled up): £92,400 × 0.9% × 9 = £7,484
• Arrangement fee (2%): £1,848
• Valuation: £400
• Monitoring surveyor (2 visits): £600
• Total finance costs:£10,332

Total amount to repay lender: £92,400 + £7,484 = £99,884

Exit: Sell for £180,000

Net profit calculation:

• Sale price: £180,000
• Less loan repayment: -£99,884
• Less your equity contribution: -£39,600
• Less broker fee (1%): -£924
• Less estate agent fees (1.5%): -£2,700
• Less sales legal fees: -£1,500
• Net profit:£35,392

Return on your investment: £35,392 profit ÷ £39,600 equity = 89% return on your cash in 9 months

Real Cost Example: Multi-Unit New Build

Project: 6-unit new build development in Aberdeen

Total project costs:

• Land cost: £300,000
• Build costs: £900,000
• Professional fees: £80,000
• Legal fees: £15,000
• Lender fees: £25,000
• Contingency: £90,000
• Total costs:£1,410,000

GDV (6 units at £350,000 each): £2,100,000

Lender’s calculation:

LTC option (70%): £1,410,000 × 70% = £987,000

GDV option (60%): £2,100,000 × 60% = £1,260,000

Loan offered: £987,000 (lower of the two)

Your equity contribution: £1,410,000 – £987,000 = £423,000 (30%)

Loan terms:

• Term:18 months
• Interest rate:0% per month (rolled up)

Finance costs:

• Interest (rolled up): £987,000 × 1.0% × 18 = £177,660
• Arrangement fee (2%): £19,740
• Valuation: £2,500
• Monitoring surveyor (6 visits): £4,500
• Total finance costs:£204,400

Total amount to repay lender: £987,000 + £177,660 = £1,164,660

Exit: Sell 6 units for £2,100,000

Net profit calculation:

• Total sales: £2,100,000
• Less loan repayment: -£1,164,660
• Less your equity contribution: -£423,000
• Less broker fee (1%): -£9,870
• Less estate agent fees (1.5% on total sales): -£31,500
• Less sales legal fees (6 units): -£6,000
• Net profit:£464,970

Return on your investment: £464,970 profit ÷ £423,000 equity = 110% return on your cash in 18 months

Eligibility & Requirements

Developer Experience

Lenders assess your track record:

• First-time developers:May require additional security or lower LTCs (60-65%)
• Experienced developers:Can access higher LTCs (70-75%) and better rates
• Track record:Lenders want evidence of completed projects (ideally 2-3 similar projects)

Exit Strategy

Lenders require a clear, credible exit plan:

• Sale of completed units (provide market evidence)
• Refinance onto BTL mortgages (provide mortgage in principle)
• Development exit finance (if needed)

Planning Permission

• Required for:Heavy refurbishments, new builds, change of use
• Not required for:Light refurbishments, permitted developments

Lenders prefer projects with planning permission already granted, but some will lend pre-planning.

Professional Team

Lenders expect:

• Qualified architect or architectural technician
• Structural engineer (for structural work)
• Quantity surveyor (for larger projects)
• Building contractor with appropriate insurance and qualifications

Documentation Required

• Project plans and specifications
• Planning permission (if applicable)
• Detailed costings and build schedule
• GDV valuation or estate agent appraisal
• Proof of developer experience (previous projects)
• Personal ID and proof of address
• Bank statements (last 3 months)
• Proof of deposit/equity funds
• Details of professional team

Bridging Finance for Refurbishments

If you need short-term funding for a refurbishment project (6-12 months) and don’t require stage releases, bridging finance may be more suitable than development finance.

When to use bridging instead of development finance:

• Light refurbishment projects (cosmetic only)
• You have all funds available upfront (no need for stage releases)
• Project duration under 12 months
• Smaller loan amounts (under £250,000)

Advantages of bridging for refurbs:

• Faster approval (1-2 weeks vs. 4-6 weeks for development finance)
• All funds available immediately
• No monitoring surveyor fees
• Simpler application process

I work with specialist bridging lenders who understand refurbishment projects and can provide flexible terms for both light and heavy refurbishments.

Lender Access

I work with a comprehensive panel of development finance lenders, including:

Specialist development lenders: Together Money, Shawbrook Bank, United Trust Bank, MT Finance, Masthaven Bank, Roma Finance, LendInvest, Octopus Property

Challenger banks: Aldermore, Hampshire Trust Bank, Paragon Bank

Private and boutique lenders: For complex cases, first-time developers, or unique projects

High street banks: NatWest, Barclays, HSBC (for experienced developers with strong track records)

This whole-of-market access means I can find you the most competitive rates and match you with lenders who specialize in your project type, location, and experience level.

Why Choose Capital 8 Finance?

I Understand Development Projects

Having worked with developers on projects from single-property refurbishments to multi-unit new builds, I understand the challenges you face – planning delays, cost overruns, market changes, and funding gaps.

Whole-of-Market Access

I’m not tied to any single lender. I’ll compare rates, terms, and criteria from multiple lenders to find you the best deal for your specific project.

Scotland-Based, UK-Wide Service

Based in Dundee, I serve developers across Scotland and throughout the UK. I understand the Scottish property market and have completed development finance cases across Scotland, England, and Wales.

Fast, Personal Service

You deal directly with me throughout the entire process. I’ll respond to your enquiry within 24 hours, provide indicative terms within 48 hours, and keep you updated at every stage.

I’ll Tell You If It’s Not Right

If your project would be better suited to bridging finance, a commercial mortgage, or another product, I’ll tell you. My priority is finding you the most cost-effective solution.

How to Apply

Step 1: Contact me with details of your project (location, type, costs, GDV, timeline)

Step 2: Initial consultation (30-45 minutes) – I’ll assess your project and confirm suitability

Step 3: Lender selection – I’ll identify suitable lenders and provide indicative terms

Step 4: Application – I’ll submit your application with all supporting documents

Step 5: Valuation & legal work – Lender arranges valuation and instructs solicitors

Step 6: Offer & drawdown – Formal offer issued, first tranche released for land purchase

Step 7: Stage releases – Funds released as work progresses and inspections are passed

Step 8: Exit – Complete your project and execute your exit strategy

Frequently Asked Questions

What’s the difference between development finance and bridging finance?

Development finance is designed for construction projects with funds released in stages. Bridging finance provides all funds upfront and is better for short-term refurbishments or property purchases.

How much can I borrow for a development project?

Typically 65-75% of total costs (LTC) or 60-65% of GDV, whichever is lower. First-time developers may be limited to 60-65% LTC.

Do I need planning permission before applying?

Not always. Some lenders will provide finance pre-planning, though rates may be higher and LTCs lower. Most lenders prefer planning permission to be granted before releasing funds.

How long does development finance take to arrange?

Typically 4-8 weeks from application to first drawdown, depending on project complexity, valuation, and legal work.

What if my project takes longer than expected?

You can usually extend your development finance term, though this will incur additional interest and possibly extension fees. Alternatively, you can use development exit finance to give you more time.

Can I get development finance as a first-time developer?

Yes, though you’ll typically need lower LTCs (60-65%), higher interest rates, and possibly additional security or a more experienced partner/contractor.

What’s a monitoring surveyor?

A surveyor appointed by the lender to inspect your project at each stage and confirm work is complete before releasing the next tranche of funds.

Can I use development finance for commercial projects?

Yes, development finance is available for commercial developments (offices, retail, industrial) as well as residential.

What happens if I can’t complete my exit strategy?

If you can’t sell or refinance as planned, you may need development exit finance to give you more time, or you may need to inject additional funds or sell at a lower price.

Do you charge a broker fee?

Yes, at Capital 8 Finance I charge a 1% broker fee on completion of the loan. I do not charge any upfront fees, so if I’m unable to source the funding you require, you don’t pay a penny.

Ready to fund your next development project? Contact Capital 8 Finance today for your free consultation.