Development finance FAQs

What is development finance?

What types of projects can development finance be used for?

Who can access development finance?

How much money can be borrowed?

How is development finance structured?

How is interest calculated?

What fees can I expect?

Is development finance regulated?

How does the application process work?

What are development finance exit routes?


What is development finance?

Development finance is a type of short-term loan used specifically for funding any form of property development projects including construction and refurbishment.


What type of projects can development finance be used for?

Depending on the lender, development finance can be used for a broad range of properties including residential, commercial, mixed-use, single and multiple units, ground-up new-build developments, conversions and renovations and development-to-let.

Who can access development finance?

Subject to lender criteria, typically an individual or limited company can apply for development finance. Many lenders will only lend to those who are able to evidence previous experience of successfully completing an equivalent development project.


How much money can be borrowed with development finance?

Three important factors will be assessed for an idea of loan size:


  • Current value of the site with planning or the value of the property before works.
  • The build costs
  • The gross development value (GDV) the end value of a property once works have completed


Typically, lenders will consider up to 65% of the gross development value and up to 100% of the build costs. Many lenders may not consider an application if the total build costs are more than 75% of the GDV. Loan terms are typically up to 18 months.


The size of the loan amount obtainable will also vary with lenders. Enterprise Finance have experience of funding projects which range anywhere from £150,000 to £25,000,000.

How is development finance structured?

Development finance is typically structured in two stages. This begins with the initial day one loan which helps get the project underway. Lenders will consider up to 60% of land purchase price at this stage. Then, the rest of the loan is then drawn down in stages depending on the progress of the project (upon certification from a monitoring surveyor).

How is interest calculated on development finance?

Interest rates will be calculated by:








  • The amount borrowed
  • The percentage borrowed against the overall costs – current value and build costs combined
  • The loan term required Interest rates typically start at 5.5% and are often calculated annually.

What fees can I expect with development finance?

These fees will vary across the market.



  • Broker fee – This varies between brokers. Some brokers do not charge a fee and rely on receiving commission from lenders when the loan completes. Other brokers may charge a fixed fee, or a percentage of the total loan value.
  • Application fee – Some lenders and brokers charge for submitting an application
  • Valuation fee – To calculate an unbiased, accurate value of the security, lenders will typically instruct an independent valuation. This can also include a projected valuation of the project once completed
  • Arrangement fee – Often calculated as percentage of the total cost of the loan
  • Monitoring fees – Development projects are monitored for progress and this typically involves a cost.
  • Draw down fees- A fee charged whenever a new instalment of funds is transferred to the borrower
  • Legal fees – If needed, borrowers will have to pay for legal costs such as hiring a solicitor or qualified legal advice
  • Exit fee – Often calculated as a percentage of the total cost of the loan
  • Administration fees - Any additional costs charged by either lender or broker

Is development finance regulated?

Development finance is only regulated when the borrower, a family member or other close person is planning to live in or currently resides in the property. At least 40% of the property will have to be used for residential use in order to qualify for FCA regulation.

How does the application process work for development finance?

This is the typical process with a broker...

  • Enquiry for capital raising raised by client
  • The broker then reviews mortgage options
  • If development finance is considered most suitable, the broker will typically refer the case to a specialist finance distributor (SFD) who may have wider access to development finance lenders and more competitive rates o The broker will inform the client that they are being referred to a SFD. They should also discuss with their clients all costs, fees and charges, required documentation, the importance of transparency and the desired exit route.
  • The SFD then reviews the key case details and...
  • Assigns the case to an underwriter who assesses the initial suitability of the application
  • Indicative terms are sent to the client, their broker and agreement letter to proceed for the client to sign and return
  • The client is then sent paperwork with checklist of supporting documents to return to the specialist finance distributor
  • A third-party surveyor instructed by the SFD visits the site to determine the project’s plausibility – and a valuer for the project’s total value
  • The formal loan offer and final terms are then sent to the client. At this point the client may involve their solicitor for legal support and advice on whether to proceed. The loan completes and the day one loan is drawn • This is followed by further drawdowns until the project is complete

What are development finance exit routes?

Typically, development finance is exited through refinance or sale of the property. Refinance quite often involves the developer exiting onto a longer-term loan facility where they retain ownership of the property and rent it out to repay the loan. Cash redemption is also an acceptable exit route if the applicant is able to show evidence of a cash event substantial enough to clear the loan occurring within the term. Investment portfolio maturity, pension lump sum or other cash events are typically considered.