Development Finance

Development finance is short-term lending designed to fund property development projects, from small residential conversions and change of use applications to larger multi-unit new build schemes. Unlike standard mortgages, development finance is assessed primarily on the Gross Development Value (GDV) of the completed project and the credibility of the exit strategy, specifically how the loan will be repaid at the end of the development period, rather than primarily on the borrower's income. At Vsure Financial, we work with specialist development finance lenders to structure funding that matches your project timeline, maximises your available capital, and gives you the clearest path to a profitable exit. Whether you are an experienced developer with a strong track record or completing your first scheme, we identify the lenders most likely to back your project and present your case in the most compelling way.

Development finance typically consists of two components: a land or site acquisition loan and a build facility. The acquisition loan funds the purchase of the site or the existing property. The build facility is drawn down in stages as construction progresses, with costs monitored by an independent monitoring surveyor appointed by the lender. Lenders generally advance up to 65 to 75 per cent of GDV, or up to 100 per cent of build costs in some cases, subject to the acquisition loan not exceeding a specified percentage of land value. The shortfall between the development finance available and the total project cost must be funded by equity, either cash from the developer or mezzanine finance from a second lender. Interest is typically rolled up and added to the outstanding loan balance during the build, rather than paid monthly. This interest-rolled structure preserves cash flow during construction. The full loan balance, including accumulated rolled interest, is repaid on the exit event, whether that is a sale or a refinance.

Development finance is priced differently from long-term mortgage products. Interest rates are typically quoted monthly, reflecting the short-term nature of the facility and the construction risk. Rates commonly range from 0.6 to 1.5 per cent per month depending on the lender, the loan-to-GDV ratio, the borrower's development experience, and the specific project profile. In addition to interest, development finance involves several transactional costs that should be factored into the project appraisal: an arrangement fee, typically 1 to 2 per cent of the total facility; an exit fee on some products, typically 1 per cent of GDV; monitoring surveyor fees payable per site visit throughout the build; and legal costs on both sides of the transaction. All of these costs should be modelled in your development appraisal before you commit to a purchase price. A project that looks viable at one level of finance cost may become marginal at another. Your Vsure adviser will help you model the full cost of capital against your projected GDV and profit margin.

A clearly defined exit strategy is not merely a requirement of development lenders; it is the foundation of a successful development project. It determines how and when the development loan is repaid, and lenders will scrutinise it closely as part of their credit assessment. The two most common exits are a sale of the completed units, whether residential, commercial, or mixed, and a refinance onto a long-term investment mortgage once the development is complete and tenanted or sold. For residential developments, some lenders require evidence of pre-sales or reservations before advancing build funds. For a refinance exit, lenders want to understand the projected rental income, the estimated property value on completion, and the loan-to-value position after the refinance. A credible, well-supported exit strategy backed by independent valuations and comparable market evidence strengthens your application considerably. It can also affect the pricing of the facility, as lenders who are confident in the exit are more likely to compete on rate.

For time-sensitive transactions where the full development finance process would be too slow, bridging loans offer rapid access to capital. Auction purchases, where completion must occur within 28 days, are the most common bridging scenario, but bridging is also used to fund light refurbishments before refinancing, to bridge a gap between selling one property and completing on another, or to secure a site before development finance is formally arranged. Bridging loans can be drawn down within days in some cases, assessed primarily on the current value of the property and the exit strategy rather than the borrower's income. Terms typically range from one to eighteen months. Rates are higher than development finance, reflecting the speed and flexibility of the product, and all costs, including the arrangement fee, interest, and any exit fee, must be calculated carefully against the value the bridging transaction enables. Your adviser will compare bridging against alternative options and recommend the most appropriate route for the specific transaction you are looking to complete.