Property Development Finance

Development finance funds ground-up builds, conversions and major refurbishments, residential or commercial. Money is released in stages as the project progresses rather than in one lump, which keeps interest costs down and gives the lender comfort that the build is on track. Sadi's Commercial Finance arranges development funding for UK developers across a panel of more than 300 lenders.

We are an NACFB and FIBA member firm. Development lending lives or dies on the numbers and the exit, and we will tell you early if a scheme does not stack up rather than let you spend months finding out.

Who development finance is for

  • Developers building new residential or commercial schemes
  • Investors converting offices, pubs or barns into residential
  • Owners undertaking heavy refurbishment beyond what a bridge would cover
  • Developers buying a site with planning already granted
  • Experienced builders taking on their next project before the last one has sold

How development finance works

Two parts to the facility

Most development facilities have a land element, advanced at the start against the site value, and a build element, drawn down in stages as work is completed. You contribute the balance, usually as equity in the land or cash.

Staged drawdowns

Funds release against build milestones, verified by a monitoring surveyor appointed by the lender. You pay interest only on what has been drawn, so the cost of the facility rises gradually rather than sitting at full whack from day one. Budget for the monitoring surveyor's fees, which recur at each drawdown.

Rolled-up interest

Interest normally accrues and is settled at the end from the sale or refinance rather than paid monthly. That protects cash flow during construction when the scheme is producing no income, but it does mean the debt grows while you build, so an honest build programme matters more than an optimistic one.

The exit

The exit is how you repay: selling the units, or refinancing onto a term or investment mortgage and holding them. Lenders will test it hard. Whether the exit is credible is the single biggest factor in whether a scheme gets funded and at what price.

How much you can borrow

Development lending is sized three ways at once, and the lowest of the three sets your limit:

  • Against gross development value. Commonly up to around 60 to 65 percent of the finished value of the scheme.
  • Against total costs. Frequently up to around 70 to 80 percent of land plus build cost.
  • Against build cost. Often up to 100 percent of the build itself, where you have enough equity in the land.

Stretched senior and mezzanine funding can push these figures higher at a higher cost, which sometimes makes a scheme viable and sometimes just makes it fragile. These are indicative ranges and vary by lender, scheme and experience.

What lenders assess

  • Your track record. The most important single factor. A first-time developer can get funded, but expect a lower loan to value, closer monitoring and a more experienced contractor to be required.
  • Planning status. Full detailed permission is straightforward. Outline permission or a scheme still at application is a different, more expensive conversation.
  • The appraisal. Land cost, build cost, professional fees, finance costs, contingency and gross development value. Lenders will re-run your numbers and are unimpressed by thin contingencies.
  • The contractor. Who is building it, on what contract, and whether they have done this before.
  • The exit. Evidenced sales values from comparable local schemes, or a credible refinance.

What development finance costs

  • Interest. Usually charged monthly on drawn funds and rolled up, not paid as you go.
  • Arrangement fee. Commonly around 1 to 2 percent of the facility.
  • Exit fee. Frequently charged, sometimes on the loan and sometimes on gross development value. The difference matters, so check which.
  • Monitoring surveyor. An initial appraisal plus a fee at each drawdown.
  • Valuation and legal fees. Yours and the lender's.
  • Broker fee. Disclosed to you in writing before you commit to anything.

Finance costs belong in the appraisal from the start. Schemes that fail usually fail on cost overruns and delay, not on the headline rate.

How long it takes

Expect around 4 to 8 weeks from application to first drawdown, driven by valuation, the monitoring surveyor's appraisal and legal work. Facility terms typically run 12 to 24 months. Build in more time than your programme says, because lenders will, and an overrun that pushes you past term is expensive to fix.

Development finance or bridging?

If the work is light, cosmetic or a straightforward refurbishment, a bridging loan is usually simpler and faster. If you are changing the structure, building from the ground up or converting use class, you need development finance with staged drawdowns and monitoring. The dividing line is roughly whether the property remains habitable and whether structural work is involved.

How to get development finance with Sadi's Commercial Finance

  1. Speak to a specialist. Tell us about the scheme, the site, planning status and projected value.
  2. Share your numbers and exit. Build costs, your contribution, the appraisal and your planned exit, whether sale or refinance.
  3. Get matched with a lender. We approach funders suited to your project size, type and level of experience.
  4. Facility structured. Staged drawdowns agreed and tied to build milestones, with a monitoring surveyor appointed.
  5. Funds released in stages. Money releases against milestones as the build progresses, with interest usually rolled up until sale or refinance.

Development finance we have arranged

A developer in Kent secured £1.2M for a 6-unit residential build. We structured a phased facility with interest rolled up until sale.

We also arranged a £1.5M staged development loan with rolled-up interest for a mixed-use scheme of 6 homes and 2 commercial units in Greater London. Read that case study, or browse all our case studies.

Why use a broker for development finance

Development lenders are highly specific about what they fund. Scheme size, unit count, location, use class and your experience all narrow the field, and most of these lenders do not deal with developers directly. Approaching the wrong one costs weeks you do not have once the land is under offer.

Jaff Sadi spent more than 25 years inside UK high street and commercial banking before founding the firm. We help present the appraisal so it survives the lender's own re-run of your numbers, which is where most first submissions fall over. One specialist handles your case from first call through every drawdown.

Frequently asked questions

How are development finance funds released?

In stages against build milestones, verified by a monitoring surveyor, so you only pay interest on what you have drawn.

What deposit or contribution is needed?

Lenders usually expect a contribution toward land and costs. Facilities are commonly capped around 60 to 65 percent of gross development value or 70 to 80 percent of total costs, whichever is lower.

What is rolled-up interest?

Interest that accrues during the build and is settled at the end on sale or refinance, rather than paid monthly. It eases cash flow during construction but means the debt grows as you build.

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

Yes, though on tighter terms. Expect a lower loan to value, closer monitoring and a requirement to appoint an experienced main contractor.

Do I need planning permission first?

Full detailed permission makes funding straightforward. Sites with outline permission or an application in progress can still be funded, usually through bridging until permission is granted.

What is a monitoring surveyor?

A surveyor appointed by the lender to check the build is progressing and on budget before each drawdown is released. You pay their fees, and they recur at each stage.

How long does development finance last?

Terms typically run 12 to 24 months, sized to the build programme plus a sales or refinance period. Extensions are possible but cost money, so build realistic contingency into the programme.

What happens if the build overruns?

Speak to your broker and the lender early. Extensions and additional funding are often arranged, but they are far easier to negotiate before you hit the deadline than after.

Related guides

Speak to a specialist about your scheme, or apply for funding online.