Property Development Finance

We are a “whole of market” broker with access to the best interest rates available, providing you with affordable finance for all types of property purchases and development.

Development financing is a specialised form of funding that helps property developers or businesses finance construction or renovation projects. Developers typically use it for large-scale projects like residential housing, commercial buildings, or even mixed-use developments. Lenders provide the capital in stages, which correspond to the project’s progress, making it a flexible option for developers to manage their cash flow during construction.

Criteria for development finance

As a general rule of thumb, the following lending criteria will be required:

• Loans begin at £25,000 and have no upper limit.
• We offer loan terms of up to 24 months.
• Interest rates range from around 7% p.a.
• Interest is ‘rolled up’ and paid at the end of the loan period; therefore, there are no monthly interest charges.
• The average lender arrangement fees range from 1 to 2% of the total loan amount.
• In some instances, exit fees will be charged, usually when the LTV is high.
• The land purchase LTV is 75%, and the build cost is 100%.
• Drawdowns will be made in line with cash flow requirements, subject to careful monitoring by the lender using a QS/monitoring surveyor.
• The lender will perform valuations both before and after development to assess the value of the completed project (GDV) and the initial build costs.
• *All rates quoted are subject to individual circumstances

The key features in development finance

• Staged drawdowns, funds are released as the project progresses.
• Loan-to-cost (LTC) ratio, often up to 70–80%.
• Loan term, usually aligns with the length of the development.
• Rolled-up interest, payments due at the end of the term instead of monthly.

Below is an example of costs involved:

We carefully assess the total amount needed and release funds at key stages of the development. The developer has the flexibility to borrow the entire build cost without any specific upper limits, ensuring the project’s completion.

Costs and fees

When calculating the total cost of your development, you need to consider various fees.

• Facility fee: Also commonly referred to as the arrangement fee. We calculate this fee as a percentage of the total loan amount.
• Interest rate: You can pay interest on development financing on a monthly or yearly basis. Yearly rates are typically around 7%, and monthly rates are around 1%. *All rates quoted are subject to individual circumstances
• Exit fee: Also known as a completion fee, lenders may determine the exit fee based on the value of the completed project rather than the loan value.
• Broker fee: The industry standard is around 2% of the net loan.
• Valuation fees: Since development finance is a secured type of loan, a neutral third party will need to fully value the assets offered as security. Typically, a neutral third party will value the completed project simultaneously.
• Application fee: Some lenders will impose a fee simply for making an application or may charge a commitment fee.
• Legal fees: The borrower will be responsible for paying any necessary legal advice or solicitor fees.
• Administration fees: These fees can refer to just about any administrative work and are therefore somewhat vague in terms of what they include. UK Property Finance does not charge any administration fees.
• Monitoring fees: The lender requires monitoring on each development to ensure the project is reaching its predetermined goals, which necessitates the payment of monitoring fees. This guarantees the agreed allocation of the released funds and the safety of the lender’s investment.
• Drawdown fees: The developer may incur this fee each time they receive funds. The fee can be a fixed amount or a percentage of the project.
• Telegraph transfer fee: Also referred to as TT fees, this is the fee charged by the banks handling the transfer of funds, which in the case of a development loan will involve large sums of money. TT fees are typically low and fixed.

The process of applying for property development financing

The process of obtaining property development finance starts with submitting a detailed proposal outlining the development plans, financial projections, and timeline. The lender will assess the viability of the project, the developer’s track record, and the potential return on investment. Once approved, the lender releases funds in stages as the development progresses, requiring certification from a monitoring surveyor at each stage. Upon completion, the developer repays the development loans, typically by selling the property or refinancing.

To begin the application process, call our development finance lending team at contact number 0116 464 5544.

The different types of development financing

There are several types of development finance, including:

Debt-based development finance 
Debt-based development finance allows developers to borrow money from lenders to fund property development projects. Unlike equity-based finance, where investors take a share of the profits, debt-based finance requires developers to repay the loan with interest within a set timeframe.

This type of finance offers several key benefits:

• Staged Drawdowns: Lenders release funds in stages as the project advances, helping developers manage their cash flow effectively.
• Loan-to-Cost Ratio (LTC): Developers can secure up to 70-80% of the total project costs, reducing the amount of upfront capital they need.
• Interest Payments: Developers or development institutions either make monthly interest payments or accumulate them to repay the principal and interest at the end of the loan term.
• Fixed Repayment Terms: Once the project is complete, developers can either sell the completed property or refinance it to repay the loan.

With debt-based development finance, developers can leverage a large portion of the project costs while keeping full ownership, as long as they meet the repayment terms. Be sure to use a development finance calculator to assess your feasibility.

Equity-based development finance
Equity-based development finance lets developers raise funds by offering investors a share of ownership or profits in the project. Instead of taking on debt, developers attract investors who provide capital in exchange for a stake in the project’s success.

Here’s how equity-based development finance works:

• Shared risk and reward: Upon completion of the project, investors share both the risk and the profits, earning a portion of the returns.
• No repayments during the project: Developers don’t need to make regular repayments during the development phase, which helps with cash flow.
• Profit sharing: Upon selling or leasing the property, developers distribute a portion of the profits to investors, rather than repaying a loan with interest.
• Flexible financing: Investors often offer more flexibility than traditional lenders, especially regarding project timelines and challenges since their return depends on the project’s success.

Equity-based development finance is ideal for developers who want to reduce upfront financial strain, share the project’s risk, and maintain greater flexibility throughout the development process.

Follow this link to see more types of development finance available in the UK.

An example of development finance

The purpose of this short-term loan instrument is to purchase land and/or property for development. Once the pre-agreed job is complete, we release the funds in stages or drawdown payments. At each drawdown, a surveyor (typically the same person who performed the initial appraisal) will visit the site and approve the release of more funds. This guarantees the completion of all pre-arranged work stages and the appropriate use of funds.

Typical project cost breakdown

Below is an infographic displaying 8 reasons why property developers should use us: