How Does Property Development Finance Work? A Step-by-Step Guide

Posted by Brickflow on 12th August 2025 -

If you’re building from the ground up or taking on a major refurbishment project, chances are you’ll need development finance to fund it. This type of specialist property loan is designed for developers looking to purchase land or sites and construct residential, commercial or mixed-use buildings.

Unlike a traditional mortgage, which can last decades, development finance is a short-term solution (usually repaid within 9 to 36 months) and tailored around the construction timeline and sales strategy.

In this guide, we’ll cut through the complexity to give you a clear understanding of:

• What development finance is
• How it works
• Who qualifies
• How to access the best deals

We’ll also show you how Brickflow’s digital platform makes it faster and easier to secure funding, giving you instant access to 100+ lenders and saving hours of time compared to the traditional, manual approach.

Why Development Finance Matters 

• The UK property market sees £15 billion in development loans issued each year, highlighting the scale and importance of this funding stream.
• But it's not always smooth sailing: Only around 55% of developers secure funding with the first lender they approach. This shows how important lender matching and deal presentation can be in getting a ‘yes’. That’s exactly where Brickflow helps.

What is development finance?

Property development comes with countless moving parts, from planning permissions and construction timelines to market fluctuations and material costs. But one of the more predictable elements is how development projects are financed.

Development finance is a short-term loan designed to fund the construction, conversion, or heavy refurbishment of residential, commercial or mixed-use property schemes. These loans are typically repaid through the sale of the completed development or by refinancing onto a long-term investment mortgage.

At Brickflow, our data from Q1 2025 shows the smallest development loan offered was £25,000, and the largest was £150 million, illustrating how flexible and wide-ranging this funding can be.

Key Features of Development Finance:

• Short-term funding, typically repaid within 9–36 months
• Used for ground-up builds, conversions, or major refurbishments
• Applicable to residential, commercial, and mixed-use projects
• Funds are usually released in stages, in line with the build schedule
• Repayment is made through a sale or refinance at project completion

Understanding the Capital Stack

To fully grasp development finance, it’s important to understand the capital stack — the layers of funding that make up a project’s financial structure. These typically include:

Senior Debt: The main loan, often provided by a bank or specialist lender. This is usually the largest portion of the capital stack and secured against the property.

Equity: The developer’s own cash or investment, used to cover the deposit and sometimes initial costs.

Mezzanine Finance (optional): A second layer of funding that sits between senior debt and equity, often used to reduce the amount of equity the developer needs to contribute.

Each layer comes with different levels of risk, cost, and repayment priority, and choosing the right structure can significantly impact your project’s success.

How does property development finance work?

Development finance is designed to support property projects from acquisition through to completion, with funds released in stages as the build progresses. While every scheme is different, the process tends to follow a consistent path:

1. Site Acquisition

The developer identifies a viable site. If the developer already owns the land and planning permission is in place, they can typically secure a development finance loan straight away. If the land needs to be purchased or additional time is required for planning, a developer could secure a short-term bridging loan in the first instance before refinancing onto a development facility.

2. Initial Application

Once the developer has determined if a development finance loan is suitable, a funding proposal is submitted, including key details such as:

• Gross Development Value (GDV): The projected market value of the development once all units are complete and ready for sale or lease. This figure is key to determining how much you can borrow.
• Estimated build costs: A breakdown of all anticipated construction expenses, including materials, labour, professional fees, and contingencies. This helps lenders assess project viability and risk.
• Planning status: Whether full planning permission is in place, pending, or required. Lenders prefer fully consented schemes but may still fund pre-planning in certain cases.
• Exit strategy (sale or refinance): How you intend to repay the loan, either by selling the completed units or refinancing onto a long-term investment loan. A clear and realistic exit is essential to securing finance.

Off the back of preliminary information provided, indicative terms can be provided. This is the estimated amount a lender is willing to offer, based on project costs, GDV, and your equity. Not a formal offer, but a strong funding indication.

Interest rate and fees

• Interest rate: Typically 6–12% per annum, often rolled up.
• Arrangement fee: Usually 1–2% of the loan amount.
• Exit fee: Commonly 1–2%, charged on loan repayment.
• Other fees: Valuation, QS, legal and monitoring costs also apply.

3. Lender Assessment

If the developer is satisfied with the indicative terms, they will typically provide more detailed information. The lender’s underwriter evaluates the project’s viability, the developer’s experience, and the proposed exit plan.

4. Valuation & QS Report

As part of the Lender’s due diligence, they will also seek out an independent valuer and quantity surveyor (QS) to assess the land or building’s current value and the estimated build costs to verify assumptions.

5. Legal Due Diligence

The lender’s solicitors carry out checks on:

• Land title
• Planning permission and agreements
• Existing charges or restrictions

Once the solicitor has undertaken these checks, final documentation is prepared including the loan agreement which states the terms of the transaction. These terms may have changed from the indicative offer provided at the start of the transaction if something has materially altered in the deal.

6. Completion & Drawdowns

Once legals are completed and documents are signed, the loan formally completes. The first tranche of the loan is released (often to fund the land purchase) and further drawdowns are made in stages, aligned with build progress and certified by the QS. Drawdowns typically fund works in arrears to ensure that the loan is being used appropriately on site.

7. Repayment

The loan is repaid at the end of the project, either by selling the completed units or refinancing onto a long-term investment loan.

Key Figures to Know

• Typical Loan Amounts: £500,000 – £50 million+
• Max LTGDV (Loan to Gross Development Value): 65–75%
• Max LTC (Loan to Cost): 80–90%

LTGDV refers to the loan as a percentage of the estimated end value of the project, while LTC refers to the loan as a percentage of the total costs (land, construction, professional fees, etc.).

What are the key features of property development funding?

While each lender has their own criteria, development finance products share many common features. Understanding these helps developers compare offers more effectively and plan for the lifecycle of their projects.

Loan Term

Development finance is short-term, typically lasting 12–36 months, with the average loan running between 18–24 months. The term is designed to match the build and exit timeline, whether that's through sale or refinance.

Interest Rates

Interest is usually charged on a monthly rolled-up basis, meaning it's added to the loan rather than paid monthly. Rates generally fall between 6–12% per annum, averaging 10.93% in Q1 2025, depending on factors such as:

• Loan-to-cost ratio
• Developer experience
• Project type and location

Fees

Lenders will typically charge:

• Arrangement fee: 1–2% of the loan amount, paid upfront
• Exit fee: 0–1% (sometimes more), paid upon repayment and linked to GDV or loan amount
• Other fees will include valuation, quantity surveyor (QS), legal, and monitoring costs

What are the main uses of property development finance?

Property development finance is a versatile funding solution that supports a wide range of project types. Some of the most common uses include:

Ground-Up Construction

Funding new-build projects such as residential homes, apartment blocks, or commercial buildings from scratch. This involves purchasing land or a site and constructing entirely new structures.

Conversions

Financing the transformation of existing buildings, for example converting office spaces into residential flats using permitted development (PD) rights. These projects often benefit from faster planning processes.

Refurbishments

Providing capital for major renovations or heavy refurbishments of existing properties. This can include updating interiors, improving structural elements, or modernising facilities to increase value and appeal.

Mixed-Use Developments

Supporting schemes that combine different property types within one project, such as retail units on the ground floor with residential apartments above. These developments offer diversified income streams and appeal to a broader market.

Where do property developers get funding?

Developers can access finance from a variety of sources depending on their project stage, risk appetite, and funding needs. Here are the main options:

Development Loans

The primary source of funding for most property developments. Provided by specialist lenders, these loans cover construction costs and are typically short-term, structured around the project timeline.

Learn more about Development Loans

Bridging Loans

Used mainly for short-term funding needs, such as purchasing land or property pre-planning, or to speed up completions. Bridging loans are faster to arrange but usually come with higher rates and fees.

Mezzanine Finance

A form of debt that sits between senior development loans and equity. Mezzanine finance provides additional leverage and fills funding gaps but often at higher cost and risk. It’s commonly used to increase loan-to-cost ratios.

Read about Mezzanine Finance

Equity Investors / Joint Venture (JV) Partners

Developers can bring in equity investors or form JV partnerships to top up their own capital contribution. This reduces loan size and risk for lenders, but means sharing project profits.

Who is eligible for property development finance?

Lenders assess several key criteria before approving development finance:

• Planning Permission: Usually required before funds are released.
• Experience: At least 1–2 completed projects preferred.
• Personal Guarantees: Often needed from directors/shareholders.
• Business Structure: Most lenders prefer lending to SPVs or limited companies.
• Creditworthiness: Clean credit history and strong financials essential.
• Exit Strategy: Clear plan to repay via sale or refinance; multiple exit strategies are favourable.

 

Require short-term, flexible loans	Usually use longer-term mortgages
Need higher loan-to-cost ratios	Typically lower-risk financing
Detailed due diligence and commercial loan structures	0–1% (sometimes higher or waived)

H2: How to get finance for property development using a specialist mortgage broker

Many developers initially approach high-street banks, attracted by their lower headline interest rates. However, a slightly higher interest rate from specialist lenders is often outweighed by the benefits of lower deposit requirements, which can free up hundreds of thousands of pounds in capital. This, in turn, boosts your return on capital employed (ROCE), a critical metric for successful developers.

A skilled property development finance broker understands these nuances and can connect you with alternative lenders who typically offer higher leverage and more flexible funding options than traditional banks.

Common Pitfalls Brokers Help Avoid

• Misunderstanding lender requirements and criteria
• Overestimating how much you can borrow
• Missing essential due diligence steps that could delay or derail funding

Brickflow combines expert broker knowledge with powerful digital tools to make sourcing finance smarter and faster.

Tips for Success

• Be realistic with your Gross Development Value (GDV) and project timelines
• Choose experienced professionals to work alongside is critical. As an example, make sure your chosen solicitor has specific development finance experience
• Always have contingency funds set aside for unexpected costs
• Engage early with brokers and lenders to allow plenty of time for assessment and approvals

Red Flags to Avoid

• Proceeding without planning permission in place
• Having no clear exit strategy for repaying the loan
• Underestimating overall project costs or build complexities

How Brickflow can help

At Brickflow, we’re reshaping how property development finance is done. What used to take weeks (like getting a decision in principle) can now take under an hour. Our platform empowers the UK’s top commercial brokers and property professionals to compare, structure, and submit development finance applications with unprecedented speed and confidence.

Brickflow connects borrowers to over 100 lenders, combining expert advice with powerful technology to deliver faster, smarter funding decisions. Whether you're building to sell or hold, our digital-first platform helps you access the most competitive finance on the market, tailored to your project and timeline.

Explore live development finance deals, check your eligibility, and start structuring your next project in minutes with Brickflow.

Conclusion

Property development finance is essential for bringing projects to life, but choosing the right funding is key. With Brickflow, developers and brokers can compare loans from the UK’s largest panel of lenders, making it faster and easier to secure the best deal and move projects forward with confidence.

In this article, we covered:

• What property development finance is and how it works
• The typical loan structure, including drawdowns and rolled-up interest
• Who is eligible and what lenders look for (e.g. planning permission, experience, creditworthiness) 
• The different types of lenders (High Street, Challenger, Non-Bank) and how they compare
• How Brickflow simplifies and speeds up the process of securing development finance

Ready to find funding for your next project? Start your search with Brickflow today.

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