What is development finance?

Development finance is short-term funding designed specifically for property development projects — including ground-up builds, conversions, and major refurbishments. It's typically used by developers, investors, and builders to fund the purchase of land or property and the associated construction costs.

In this guide, you'll learn how development finance works, the types available, what it can be used for, the potential benefits and risks, and how to decide whether it could be right for your project.

What is development finance?

Development finance is a specialist form of short-term borrowing that funds both the acquisition of land or property and the cost of carrying out the development works. Unlike a traditional mortgage, which provides a single lump sum, development finance is typically released in tranches — with funds drawn down at each stage of the build.

The loan is usually secured against the property or land being developed, and is repaid when the project is completed and the properties are sold or refinanced onto longer-term finance.

How does development finance work?

The lender typically provides funding in two parts:

• Land/property purchase — a percentage of the purchase price, typically 50–70% of the land or property value.
• Build costs — typically 100% of construction costs, released in tranches at each stage of the build (e.g. groundworks, superstructure, first fix, second fix, completion).

Interest is usually charged monthly or rolled up and paid at the end of the term. The loan is repaid when the development is completed and the units are sold or refinanced. Terms typically range from 6 to 24 months.

What types of development finance are available?

Ground-up development finance

For new-build projects, from single units to large-scale residential or commercial developments. The lender funds land acquisition and construction costs from the ground up.

Heavy refurbishment finance

For projects involving significant structural changes — such as extensions, conversions, or substantial renovation work that goes beyond cosmetic refurbishment.

Conversion finance

For converting existing buildings into a different use — for example, converting a commercial property into residential units, or splitting a large house into flats.

What can you use development finance for?

• New-build residential developments — from single units to multi-unit schemes.
• Commercial developments — offices, retail, or mixed-use schemes.
• Conversions — barn conversions, office-to-residential conversions, or HMO conversions.
• Heavy refurbishments — structural alterations, extensions, or substantial renovation.
• Land acquisition — purchasing land with planning permission for development.

What are the benefits?

• Funds both land and build — covers acquisition and construction costs in one facility.
• Stage payments — funds are released as the project progresses, reducing interest costs.
• Specialist assessment — lenders understand property development and assess projects on their merits.
• Higher lending limits — can fund larger projects than standard bridging finance.
• Flexibility — can be structured for a range of project types and sizes.

What are the risks?

• Higher cost — development finance is more expensive than traditional mortgages or business loans.
• Property at risk — the loan is secured against the property, which could be repossessed if you default.
• Build delays — if construction runs over schedule, costs can escalate and the loan term may need extending.
• Exit strategy risk — if you can't sell or refinance the completed units, you may struggle to repay the loan.
• Cost overruns — if build costs exceed projections, you may need additional funding.

Is my project eligible?

Lenders will typically assess:

• Planning permission — most lenders require planning permission to be in place.
• Developer experience — a track record of similar projects is often preferred, though first-time developers may still be considered.
• Gross Development Value (GDV) — the projected value of the completed development.
• Build costs — a detailed budget and timeline for construction works.
• Exit strategy — a clear plan to repay the loan through sale or refinance.

Development finance vs bridging loans

While both are forms of short-term property finance, development finance is specifically designed to fund construction projects, with funds released in tranches as the build progresses. Bridging loans provide a single lump sum, typically used for property purchases or light refurbishments where significant construction isn't required.

Development finance can fund larger, more complex projects but typically costs more and requires more detailed project planning.

How do I choose a provider?

• Compare interest rates, arrangement fees, and exit fees across lenders.
• Check the maximum loan-to-cost (LTC) and loan-to-GDV ratios offered.
• Understand how build cost funds are released — stage payments vs monthly drawdowns.
• Consider the lender's experience with your type of project.
• Check whether the provider is authorised and regulated by the FCA.

How can I learn more?

You may also find our guides on bridging loans, commercial mortgages, and business loans helpful.