Development Finance for Brokers: Development finance is assessed as a project, not simply as a property loan.

A lender must understand what is being built, how the work will be funded and how the debt will be repaid. For brokers, this makes case preparation as important as lender selection.

This guide explains the technical points brokers should assess before presenting a development finance application.

Development Finance at a Glance

Development finance is short-term funding for construction, conversion and major refurbishment projects.

Funds are normally released through staged drawdowns as work progresses. Lenders assess the site, planning position, total costs, gross development value, borrower experience, professional team and exit strategy.

A well-packaged case should clearly show:

• what the developer intends to build;
• how much the project will cost;
• how much funding is required;
• when each drawdown will be needed;
• what the completed development may be worth;
• how the facility will be repaid.

Connect supports mortgage advisers with specialist case placement, packaging and lender access through its adviser services for mortgage brokers.

What Is Development Finance?

Development finance is a short-term property facility used to fund building work.

It may support:

• land purchases linked to development;
• residential new-build schemes;
• commercial-to-residential conversions;
• mixed-use developments;
• structural refurbishment;
• multi-unit projects;
• phased construction.

Unlike a standard mortgage, the full facility is not normally released at completion. An initial amount may fund the purchase or refinance. Further funds are then released as agreed stages of work are completed.

This structure helps the lender control construction risk. It also prevents interest being charged on the entire facility from the first day where funds remain undrawn.

When Is Development Finance More Suitable Than Bridging Finance?

The distinction normally depends on the scale and nature of the work.

Bridging finance may suit an acquisition, auction purchase, chain break or lighter refurbishment. Development finance is generally more appropriate when a project involves:

• ground-up construction;
• structural alteration;
• a significant change of use;
• staged building costs;
• detailed monitoring;
• a full development appraisal.

Some cases sit between the two products. The works, drawdown requirements and proposed exit should determine the route rather than the product name alone.

Brokers handling time-sensitive property cases can also review the Bridging Finance Options guide.

How Is a Development Finance Facility Structured?

A development finance facility commonly contains two main elements.

Initial Advance

The initial advance is released when the facility completes. It may be used to:

• purchase the site;
• repay existing finance;
• fund early professional costs;
• begin approved works.

Staged Drawdowns

Further advances are released during construction.

A monitoring surveyor will usually inspect the site and confirm that the relevant work has been completed. The lender may also compare actual spending with the agreed cost plan.

Brokers should establish whether drawdowns are paid in advance or in arrears. Where they are paid in arrears, the developer must have enough working capital to complete each stage before reimbursement.

Which Development Finance Metrics Matter?

Lenders use several linked calculations when deciding whether a scheme is supportable.

Gross Development Value

Gross development value, or GDV, is the estimated market value of the completed project.

The valuation must be supported by suitable evidence. Overstated sales assumptions can weaken the entire application.

Loan to Cost

Loan to cost, or LTC, compares the proposed facility with the total project cost.

The cost assessment may include:

• purchase price;
• construction costs;
• professional fees;
• finance costs;
• planning-related expenses;
• contingency.

Loan to GDV

Loan to GDV compares the debt with the expected completed value.

This helps the lender estimate how much value may remain in the scheme after the facility has been repaid.

Developer Contribution

The developer will usually need to contribute capital.

That contribution may come from cash, existing site equity or another source accepted by the lender. Its origin must be clear and evidenced.

What Do Development Finance Lenders Assess?

Development lenders review the whole delivery plan.

Their assessment may include:

• planning consent and conditions;
• title and site restrictions;
• borrower experience;
• contractor experience;
• the professional team;
• build costs;
• the construction schedule;
• contingency provision;
• local sale or rental demand;
• projected GDV;
• borrower contribution;
• credit history;
• the proposed exit.

A first-time developer may still obtain funding. However, the lender may expect a simpler scheme, greater capital input or an experienced contractor and professional team.

The objective is not to remove every project risk. It is to demonstrate that those risks have been identified, costed and controlled.

Which Documents Should Brokers Obtain?

A complete document pack allows the lender to assess the case without repeatedly requesting basic information.

The application may require:

• planning permission and relevant conditions;
• architectural drawings;
• a development appraisal;
• a detailed schedule of works;
• a cost plan;
• the proposed build programme;
• contractor details;
• professional team details;
• evidence of developer experience;
• proof of funds;
• asset and liability information;
• company documents;
• comparable sale or rental evidence;
• a written exit strategy;
• identification and anti-money laundering documents.

Figures should remain consistent throughout the application. The purchase price, development costs, requested facility and GDV should agree across the appraisal, application and supporting evidence.

How Should the Exit Strategy Be Tested?

The exit should be considered before the facility is arranged.

Common routes include:

Sale of the Completed Development

The completed units are sold and the development facility is repaid from the proceeds.

The lender may test the assumed sale values, demand, sales period and expected disposal costs.

Refinance onto Long-Term Finance

The developer retains the completed property and refinances it onto buy-to-let, semi-commercial or commercial finance.

This requires evidence that the finished property could meet the future lender’s valuation and affordability requirements.

Partial Sale and Retention

Some units are sold to reduce the debt. The remaining units are retained and refinanced.

Each stage should show how much debt will be repaid and whether the retained properties can support the remaining borrowing.

Projects approaching practical completion may also require development exit finance where the original facility is nearing expiry.

What Makes a Development Finance Case Stronger?

A strong case allows an underwriter to understand the project without making assumptions.

Before submission, brokers should check that:

• planning is clear;
• costs are independently supportable;
• contingency is realistic;
• the borrower’s contribution is evidenced;
• the contractor can deliver the work;
• the build schedule is achievable;
• GDV is supported by market evidence;
• drawdown timing matches cash-flow needs;
• the exit remains credible if delays occur;
• all documents use the same figures.

A lower headline rate does not automatically produce the best outcome. Drawdown terms, monitoring costs, retained interest, fees and extension provisions can materially affect the total cost.

Good development finance advice therefore involves structure as well as price.

How a Mortgage Network Can Support Development Finance Brokers

Development finance cases are often manually assessed and lender-specific. Advisers may need support with case placement, packaging and related finance requirements.

Connect is a mortgage network supporting advisers across residential mortgages, buy-to-let, commercial finance, bridging, development finance, second charges, protection and general insurance.

This wider structure matters because a development client may need several forms of finance during one project. The initial purchase, construction stage and completed asset may each require a different solution.

Experienced advisers who want access to broader lender and case support can learn more about how to join Connect Network.

Consumers seeking individual advice can use Connect Experts to find development finance mortgage brokers or use the development finance adviser search.

Frequently Asked Questions

What is development finance used for?

Development finance funds new builds, property conversions, structural refurbishment and other projects involving significant building work.

Are development finance funds released in stages?

Usually. An initial advance may be followed by further drawdowns after inspections confirm that agreed stages have been completed.

What does GDV mean?

GDV means gross development value. It is the estimated market value of the finished development.

What does loan to cost mean?

Loan to cost compares the amount borrowed with the total cost of purchasing and completing the project.

Can first-time developers obtain development finance?

Some lenders consider first-time developers. The decision may depend on the project, capital contribution, contractor and professional team.

Why is the exit strategy important?

The exit strategy explains how the facility will be repaid. Common exits include selling the completed units or refinancing them onto longer-term finance.

Can development finance cover all project costs?

Full-cost funding is uncommon. The borrower will normally need to contribute capital or acceptable equity. Terms vary by lender and project.

Is development finance regulated?

Some development finance may be regulated, depending on the borrower, property and intended use. Brokers should establish the regulatory position before recommending or arranging a facility.