How Does Property Development Finance Work?

Development finance funds the construction, conversion or heavy refurbishment of property. Unlike a mortgage, it is not paid out in one lump. It is released in stages as the build progresses, which is what makes it work for both the developer and the lender.

The key numbers

• GDV (Gross Development Value): what the finished scheme will be worth or sell for.
• Total costs: land, build, professional fees, finance costs and contingency.
• Loan-to-GDV: lenders typically go to 60–70% of GDV.
• Loan-to-cost: lenders typically fund up to 85–90% of total costs for experienced developers.
• Profit on cost: lenders want to see a healthy margin, usually 20% or more, as a buffer.

How the facility is structured

The loan is split into two parts. The land or site loan is released on day one to complete the purchase (or to refinance land you already own). The build facility is then drawn in stages, usually monthly, against work completed on site. Interest is rolled into the loan and repaid at the end, so there are no monthly payments during the build.

The role of the monitoring surveyor

The lender appoints an independent monitoring surveyor who reviews your costs and programme at the outset and then visits the site before each drawdown to confirm the work claimed has been done. Their sign-off releases the next tranche. Good relationships with the monitoring surveyor keep cash flowing.

The timeline

Indicative terms within days. Valuation, monitoring surveyor's initial report and legal due diligence typically take four to eight weeks to first drawdown. The facility term is set to cover the build plus a sales or refinance period, usually 9 to 36 months.

The exit

Development loans are repaid from the sale of the completed units or by refinancing onto a longer-term mortgage (a development exit or investment loan) if you plan to hold and let. Lenders assess the credibility of the exit before they lend.

What lenders need from you

A detailed appraisal, a build cost schedule with contingency, a programme, evidence of GDV, planning permission, your team's details, your own cash contribution, and your track record or, for first-time developers, the experience of your contractor and professional team.

Why structure matters

Two lenders can quote very different terms for the same scheme depending on how it is presented. DNA Finance structures the facility, sources competitive terms from development lenders across the market and manages the process from land purchase through to the final drawdown.