Development loans explained
A development loan funds a build in stages as it is certified, then falls due at practical completion. This guide explains how the money is drawn, sized and priced, and where the exit finance picks it up.
A development loan is a facility that funds the construction of a property in stages, releasing money against works as a monitoring surveyor certifies them and falling due at practical completion. Lenders size it against both cost and value, indicatively up to 60 to 70 percent of total cost and 60 to 65 percent of gross development value. We arrange and place development loans for commercial and residential schemes; we do not lend. It is drawn in arrears, priced with interest plus arrangement and exit fees, and repaid by a sale or by refinancing onto development exit or stabilisation finance once the scheme is built.
At a glance
- What it isStaged funding for a build project
- DrawdownIn arrears, against certified works
- Loan to costIndicatively up to 60 to 70%
- Loan to GDVIndicatively up to 60 to 65%
- TermTypically 12 to 24 months
- ExitSale, or refinance onto exit or stabilisation finance
What is a development loan?
A development loan is short-term property finance that funds the construction or major refurbishment of a scheme from the ground up. Unlike a mortgage, which advances a lump sum against a finished asset, a development loan is released in stages as the build progresses, and it is repaid in full at the end of the project rather than amortised over years. It is a project facility: it exists to get a scheme built and then to be refinanced or repaid from the value that the build creates.
Development finance covers the land, or a slice of it, and the build costs, and it runs for the length of the programme plus a marketing or letting tail, typically 12 to 24 months. It suits ground-up construction, conversions and heavy refurbishment where the works are substantial enough that a standard bridge or mortgage does not fit. We arrange development loans as unregulated commercial facilities and place them with the lender whose appetite matches the scheme; we are an arranger, not a lender.
A bridging loan is drawn in full on day one against an asset that already exists. A development loan is drawn in stages against an asset that is being built, and the lender's monitoring surveyor stands between you and each release. That staged, certified structure is what separates development finance from the bridging and exit facilities that come before and after it.
How does development finance drawdown work?
Development loans are drawn down in arrears, meaning you fund a stage of works from your own cash or the previous drawdown, and the lender then reimburses you once that work is done and signed off. The gatekeeper is the monitoring surveyor, an independent quantity surveyor appointed by the lender who visits the site, certifies the value of the works completed, and confirms the project is on budget and on programme before each tranche is released.
- The lender advances the land tranche, or a first drawdown, at completion of the loan.
- You carry out the next stage of works, funding it from cash flow or the prior drawdown.
- The monitoring surveyor inspects the site and certifies the value of completed works.
- The lender releases the next tranche against that certification, net of any retention.
- The cycle repeats through the build until the scheme reaches practical completion.
This drawdown in arrears against certified works protects the lender from paying for work that has not happened, and it keeps interest down for the borrower, because interest is only charged on money actually drawn. It also means cash flow has to be managed carefully: you fund each stage before you are reimbursed, so a realistic build programme and a contingency are essential. You can model the phased leverage at /calculators/loan-sizing/.
How lenders size a development facility
A development lender sizes the loan against two numbers at once, and the lower of the two sets the ceiling. The first is loan to cost, the proportion of total project cost the lender will fund. The second is loan to gross development value, the proportion of the finished scheme's end value the debt can reach. A lender wants both to sit inside its limits, so the facility is capped by whichever bites first.
| Sizing measure | What it covers | Indicative ceiling |
|---|---|---|
| Loan to cost (LTC) | Land plus build and associated costs | Up to 60 to 70% |
| Loan to GDV (LTGDV) | The finished scheme's end value | Up to 60 to 65% |
| Borrower's equity | The cost the loan does not fund | The balance of cost |
In practice a scheme funded to 65 percent of cost and 60 percent of gross development value asks the developer to put in the rest of the cost as equity, and the lender relies on the margin between the debt and the end value as its cushion. Where the developer wants to put in less equity, a stretch senior or a mezzanine layer can lift the leverage, which we cover further down. Gross development value, the professional estimate of what the completed scheme is worth, is the anchor the whole facility hangs from, so a robust, defensible valuation matters more here than almost anywhere in property finance.
What development loans cost
Development finance is priced for the risk of an unfinished asset, so it costs more than a mortgage and usually more than a standing-asset bridge. The cost comes in several parts, and it pays to look at the all-in figure rather than the headline rate alone.
- Interest: charged monthly on the drawn balance, commonly rolled up and settled at exit so the project is not carrying monthly payments during the build.
- Arrangement fee: typically around 1 to 2 percent of the facility, taken at the outset or added to the loan.
- Exit fee: charged at redemption, often calculated on the loan or on gross development value; not every lender charges one, so it is worth comparing.
- Monitoring surveyor fees: the cost of the independent surveyor's inspections and certifications through the build, paid by the borrower.
- Valuation and legal costs: the usual professional fees on any secured facility.
Because interest is charged only on the drawn balance and is often rolled up, the true cost depends heavily on how quickly the scheme draws down and how long it runs. The market that funds this is deep and growing: the BDLA put the UK bridging and development loan book at a record 13.7 billion pounds as at Q3 2025, up 51.6 percent year on year, and recorded 11.7 billion pounds of applications in Q4 2025. All the figures here are indicative and illustrative, and never an offer of credit.
Who development loans are for
Development loans are for the businesses and investors building or converting property to sell or to hold: housebuilders and residential development firms, commercial developers, and investors undertaking a heavy refurbishment or a change of use. How much you can borrow follows the sizing caps above. Lenders look hardest at the developer's track record, the strength of the professional team, the build cost and contingency, and the credibility of the exit, whether that is a sale or a refinance onto longer-term debt.
First-time and smaller developers can raise development finance too, though usually at lower leverage and with a strong contractor and monitoring team standing behind the scheme to give the lender comfort. We arrange development loans across the UK for both experienced and newer developers; local market data is at /locations/. The broader picture of short-term property debt for investors sits at /blog/bridging-loans-for-commercial-and-investment-property/.
The capital stack: senior, stretch and mezzanine
On a larger scheme the funding is rarely a single loan. It is layered into a capital stack, and each layer takes a different position and price for a different slice of the risk. Understanding the stack is how a developer raises the leverage a project needs without over-paying for it.
| Layer | Position | What it does |
|---|---|---|
| Senior debt | First charge | The core, cheapest loan, to a conservative loan to cost |
| Stretch senior | First charge | A single facility pushed to a higher loan to cost |
| Mezzanine | Second charge | A layer behind the senior debt to top up the leverage |
| Developer equity | Residual | The cost and risk the developer carries itself |
Senior debt is the cheapest and most conservative layer. Stretch senior rolls a higher loan to cost into one facility for a premium. Mezzanine sits behind the senior debt, usually as a second charge, and lifts the total leverage further for a higher rate and often a profit share. We structure and place these layers together so they inter-lock cleanly; the mezzanine and equity route is set out at /services/mezzanine-and-equity/.
The exit at practical completion
A development loan is written to be repaid at practical completion, the point at which the building is finished and signed off. That is the moment the facility falls due, and it is also the riskiest moment in the whole project, because the scheme is finished but the sales or lettings that repay the loan have usually not all happened yet. Planning the exit before the build even starts is what keeps a project from stalling at the finish line. There is a fuller treatment of that moment at /blog/what-happens-when-a-bridging-loan-ends/.
Two routes carry the scheme past that point. If the plan is to sell, development exit finance refinances the maturing development loan onto a cheaper facility once the build risk has gone, buying time and a lower rate to sell the units in an orderly way; it is set out at /services/development-exit-finance/. If the plan is to hold and let, the scheme still has to reach a stabilised income before an investment lender will refinance it, and stabilisation finance funds that lease-up window from completion to a stabilised income, as set out at /services/stabilisation-bridge-finance/.
A finished building is not the same as an income-producing one. Between practical completion and a stabilised, fully let income there is a window where the development loan is due but a term lender will not yet refinance. Stabilisation finance carries the asset across that window, so the exit from a development loan is planned as a route, not a single event.
Stabilisation Finance arranges commercial finance for businesses, investors and experienced developers, and this lending is unregulated. Where a scheme involves a borrower's own home or a transaction that would require FCA authorisation, it becomes a regulated matter overseen by the Financial Conduct Authority and we refer it to a regulated firm. We are an arranger and introducer, not a lender. We arrange the development loan, the layers of the stack behind it, and the exit onto development exit or stabilisation finance, so the funding plan runs through to the sale or the term refinance rather than stopping at completion.
Development loans explained: common questions
How does a development loan work?
A development loan funds a build in stages rather than as a single advance. Money is drawn down in arrears against works that an independent monitoring surveyor has certified, so the lender only releases each tranche once that stage is done and signed off. Interest is charged on the drawn balance, often rolled up, and the whole facility falls due at practical completion, to be repaid by a sale or a refinance.
How much do development loans cost?
Cost comes in several parts: monthly interest on the drawn balance, an arrangement fee typically around 1 to 2 percent, sometimes an exit fee at redemption, the monitoring surveyor's fees through the build, and the usual valuation and legal costs. Because interest is charged only on money actually drawn and is often rolled up, the all-in cost depends on how fast the scheme draws down and how long it runs. All figures are indicative and not an offer of credit.
How to get funding for a property development?
A lender will want a credible scheme, a costed build programme with contingency, a defensible gross development value, a capable professional and construction team, and a clear exit by sale or refinance. As an arranger we package the scheme, size it against loan to cost and loan to GDV, and place it with the lender whose appetite fits, adding stretch senior or mezzanine layers where the project needs more leverage than senior debt alone provides.
How to get 100% development finance?
True 100 percent development finance, where the lender funds all the cost, is rare and usually only comes with the developer giving up a share of the profit or bringing other security. More commonly, leverage is lifted toward the top of the cost by stacking a stretch senior or a mezzanine layer behind the senior debt, which raises the total loan to cost while keeping each layer priced for its own risk rather than funding everything at one rate.
How is a development loan sized?
It is sized against two measures at once, and the lower one sets the ceiling: loan to cost, indicatively up to 60 to 70 percent of total project cost, and loan to gross development value, indicatively up to 60 to 65 percent of the finished scheme's end value. The developer funds the balance of cost as equity, and the margin between the debt and the end value is the lender's cushion.
What is the difference between a development loan and development exit finance?
A development loan funds the build itself, drawn in stages against certified works. Development exit finance refinances that loan once the scheme reaches practical completion and the build risk has gone, giving a cheaper rate and more time to sell the units. Where the plan is to hold and let rather than sell, stabilisation finance instead carries the asset through lease-up to a stabilised income before a term lender refinances it.
What happens to a development loan at practical completion?
The loan falls due at practical completion, which is the point the scheme is finished and signed off. If everything is sold or refinanced by then it simply repays, but usually the sales or lettings are still in progress, so the loan is refinanced onto development exit finance to sell in an orderly way, or onto stabilisation finance to fund the lease-up window until the asset reaches a stabilised income and a term lender takes over.
Is development finance regulated by the FCA?
The commercial development lending we arrange is unregulated and sits outside the Financial Conduct Authority's regulated mortgage perimeter. Where a scheme involves a borrower's own home or a transaction that would require FCA authorisation, it becomes a regulated matter and we refer it to a regulated firm. Stabilisation Finance is an arranger and introducer, not a lender.
Funding a scheme through stabilisation?
Send us the scheme and the numbers and we will come back with a view on fundability and likely terms within one working day.