Development & Construction Finance

If you’re planning to embark on a building project, perhaps a new construction or renovating an existing property – development finance could be the funding solution you need.

This guide explains everything you need to know about how these loans work. We’ll cover all the different property development options, how to secure financing, and where to get the expert support you’ll need to get the best rates. This is our main guide, but you can browse all our content on this topic on our dedicated development finance page.

What is development finance?

Development finance is a type of short-term, interest-only loan similar in many ways to bridging loans, except for the way in which borrowed funds are paid out (in stages rather than a lump sum). Developers, landlords, and investors commonly use development finance because its flexibility allows it to be used for residential, commercial, or mixed-use properties.

Is it different to construction finance?

Construction finance refers only to funding for the construction stage of property development, but it falls under the broader heading of development finance. This covers both the initial site purchase and the subsequent work; the terms are sometimes used interchangeably.

Affordability for construction finance involves working with several unknowns, but the key metric lenders use to establish how much to lend is based on a figure called the gross domestic value (GDV)

The GDV of the property refers to its expected value once all development works have been completed, plus the estimated costs of the project.

How does development finance work?

It allows you to borrow on a short-term basis, with funds paid out to you in drawdown stages as your property development project progresses, known as ‘tranche drawdowns’. In most cases, lenders will carry out periodic re-inspections of the site before each payment is made, similar to a self-build mortgage.

This is to ensure you remain on track with the schedule of work (SOW). Like with most interest-only borrowing, one key requirement is that you prove a viable exit strategy. Your plan to pay back the debt at the end of the term. This would usually be done by refinancing or selling the property once the development project has been completed.

Although development finance draws similarities with bridging loans, the ability to borrow much larger sums is a major advantage. Especially if you’re hoping to buy a piece of land or embark on a sizeable construction project. But, even though development finance can be used for both a site purchase and construction costs, different terms and rules can apply to each use.

Eligibility criteria and deposits

Each situation is unique. Your eligibility for development finance will depend on your individual circumstances and the property development you’re planning.

But below are some major points lenders consider, along with typical deposit and loan-to-value (LTV) requirements.

• Deposit: the deposit size and resulting LTV for development finance will first depend on whether you need funding for the site purchase and also the construction. If that’s the case, most lenders will want a deposit of between 25% to 40% of the site value. So, your LTV would be in the region of 60% to 75% for the land. Then, some lenders (but not all) will offer up to 100% LTV development finance for the actual construction and development costs. To do this, you’d need to use another high-value asset as security for the loan. Or sometimes, agree to a profit-sharing (joint venture) finance arrangement.
• Exit strategy: the strength of your exit strategy will play a key role. Since you’ll only be paying interest on the development finance, lenders will want to see a solid plan for paying back that debt at the end of the term. Proof of a solid exit strategy, such as your ability to sell or remortgage the development, will be an important factor.
• Development experience: typically, finance will be easier to get if you have past experience with a property development project. A proven track record will show lenders that you’re serious and their investment is in safe hands. But, a few lenders will be open to financing your project if you’re a first-time developer.
• Type of interest and term length: some lenders may give you the option of a fixed or variable rate, but others won’t. Also, even though this is a type of short-term finance, property developments can take time, so term lengths can range from around 3 to 36 months. The type of interest and loan length can both impact your rates, so it’s worth dealing with a lender that suits your specific property development needs.
• Higher rates: Some lenders offering development financing options charge higher rates of interest to offset the potential risks associated with a significant property project. It’s important to make sure you are introduced to the right lender if you want to keep your borrowing costs down.
• Type of development: some lenders specialise in specific areas of development finance, for example – hotels, first-time developers, overseas projects, or even small property development loans. This is why it’s so crucial you speak with the most suitable lender from day one if you want to get your project underway with the right type of development finance.
• Early repayments and additional fees: some lenders will allow you to overpay or make earlier than scheduled repayments with no extra fees, but others won’t. You should also take the time to note any additional charges involved such as an exit fee (usually 1%-2% of the total loan), broker fees, valuation charges, and arrangement costs (sometimes 1%-2% of the gross facility).

How to get development finance

Your first recommended step is to speak with a broker with experience arranging development finance. If you make an enquiry with us, our broker-matching service will match you with the right advisor.

Your development finance broker will then be able to help with the following: 

• Preparing your business plan and exit strategy: A lender will want to see a detailed plan outlining the schedule of work for the development and a clear exit strategy once the property has been completed. Your broker can help gather together the information required for your specific development plans. 
• Working out how much you’ll need to borrow: With their experience in arranging loans for property development, your advisor will be able to help you calculate how much you need to borrow for your project. The potential gross development value (GDV) and associated costs are examined. 
• Finding the right lenders: Development finance is a specialised form of lending. Your broker will quickly identify lenders who work in this area of finance and currently offer the most favourable terms. This will save you a lot of time and, potentially, some money, too. 

How much will a development finance broker cost? 

It depends on the complexity of the application, but typically, development finance brokers charge between 0.75% and 1% of the amount borrowed, which is usually payable directly to the broker once the formal loan offer has been agreed upon.

Some brokers may ask for an upfront administration fee as part of their overall compensation before submitting an application to a lender. 

Types of developments you can fund

As long as you deal with the right lender, your potential uses of funds are fairly limitless.

• Residential buildings: This could be for a single or multiple houses or maybe something like a residential apartment block or multi-unit accommodation.
• Commercial projects: Financing for anything related to commercial development, such as offices, retail stores, industrial facilities (warehouses, factories), medical centres (hospitals, nursing homes), hotels, pubs, restaurants, and cafes.
• Regeneration or conversions: You might want to carry out light refurbishment, which is mainly aesthetic, or more significant renovations to a building that involve structural changes.
• Ground-up development: This would involve starting with a plot of land and building from scratch, or perhaps a complete build using just some original foundations or stonework.

How much you can borrow

When development finance lenders calculate how much they’re willing to let you borrow, various methods will often be used to work out affordability. The most common is for the lender to base it on the project’s ‘Gross Development Value’ (GDV) plus costs. The GDV is the estimated value of the completed development.

So, a typical development finance deal may involve a lender providing 70% GDV plus 75% to 100% of costs. But, it’s important to realise that each lender will have its borrowing limits. Some may also have a minimum borrowing figure, while others only offer the best loan rates within a specific size range.

The smallest property development loans can be around £50,000, and the largest sums for development finance can go as high as £50 million. However, a tailored borrowing arrangement can vary these figures slightly.

Available lenders

The exact lenders available will depend on many factors, including your location. To give you an idea of some lenders who offer forms of development finance, here are a few examples:

• Paragon Bank: First-charge lending up to 70% GDV and 90% of costs for loans between £450k and £35 million is available only in England and Wales.
• BLG: Provide development finance loans of between £1 million and £15 million for residential or commercial projects. However, only for 12 to 24 months with a 70% maximum LTV and up to 85% of costs.
• Aldermore Bank: Finance for property developments between £1 million and £25 million, lending up to 85% loan to cost, or 65% of the GDV. The maximum term length is 30 months, and a fixed interest rate is decided on a case-by-case basis.

Specialist lenders for construction finance include Mint, Paragon, Octopus Real Estate and Hope Capital. You will need to work with a development finance broker to get access to these lenders, and they will also be able to guide you towards the most suitable providers for your needs.

Many firms operating within the specific niche of development finance tend to be bespoke lenders. This means that most do not advertise or make public their deals and terms. Sometimes, an introduction from a trusted broker is needed even to get your foot in the door.

The brokers we work with are specialists in helping clients secure development finance for all sorts of projects. Many will have existing contacts and relationships with niche and private lenders.

Examples of interest rates

Development finance rates can vary widely depending on many variables relating to your circumstances and specific property plans. But to give you an idea, at the time of writing (June 2025), typical rates can range from 6% to 16%.

That’s obviously quite a wide margin and the lender you deal with can make a huge difference to the overall cost of financing your project. This is why it’s well worth speaking to a lender that will be most accommodating to your plans. The best way to find the most competitive rates is by using the services of a specialist broker.

Using mezzanine finance to fund a development

Although not likely to cover all your financing needs, mezzanine finance can be useful when used with other funds as a second-charge loan. It can bridge the gap between your capital and funds provided by a lender.

So, as an example your primary lender may only be able to provide development finance equivalent to, say 60% of the overall funding required. If you can only provide a further 20% then you have a further 20% gap. This is where a mezzanine finance arrangement can be useful, plugging the gap in your finances so you can complete on a project, which may otherwise have not been possible.

Alternative options to consider

After putting some initial plans together and discussing them with an expert broker, you may discover that there are other more suitable ways of financing your development.

A few examples of alternative ways to finance your project include:

Joint venture

If you’ve been rejected or were unable to raise the necessary funds for a deposit, it may be worth exploring a joint venture with an experienced developer. This involves pooling resources and knowledge to secure finance and can be particularly useful for first-time developers. However, it can sometimes lead to higher rates and profit-sharing percentages of around 50%.

Commercial loans

A business loan can be used to buy the land or site, provided you can afford the monthly repayments and the construction costs for the rest of the development.

Equity release

This can be a good option if you already own a residential or commercial property. You could explore refinancing it to release equity and help fund a new project.

Bridging loans

These tend to be much smaller, and funds are paid in lump sums rather than stages. But they’re another type of short-term, interest-only finance that could play a useful role for some developers. Sometimes, it can be possible to use both a bridging loan and development finance in tandem.

Speak with a development finance specialist

Financing both large and small property developments can be complex. The size of the figures involved also means that small differences can have a big impact on your overall costs and plans.

The best way to get set up with the most competitive development finance arrangement for your specific project and goals is to get advice from a specialist broker. Our broker-matching service means we can introduce you to one that suits your needs.

Just call 0330 818 7026 or make an enquiry. Today, we’ll arrange a no-obligation chat between you and an experienced development finance broker.