What Development Finance Does, and Why Developers Use It Wrong

Development finance has been around for decades. The broad principles haven't changed much: borrow against land, draw down against build costs, repay on sale or refinance. What has changed is how much it matters to understand those principles properly before you start putting an application together.

The market right now is active and genuinely competitive, particularly for well-structured schemes. But knowing the product exists and knowing how to access it on the right terms are two very different things.

How development finance actually works

Development finance is a short term facility, typically 12 to 24 months, used to fund the purchase and build costs of a residential, commercial, or mixed use scheme. It isn't a mortgage and it isn't a bridging loan, though the two are sometimes confused. It's a purpose built product for projects in progress.

The key difference from most other finance products is that funds aren't released in a lump sum. They're drawn down in stages as the build progresses, with each release tied to a verified point in the construction process. That structure protects the lender's position and keeps the borrower from sitting on idle capital they're paying interest on.

The metric that matters: loan to GDV

Most developers are familiar with loan to value. Development finance runs on a different calculation: loan to GDV, meaning loan to gross development value. GDV is the projected market value of the completed scheme once the work is done and units are sold or valued for refinancing. The loan is sized as a percentage of that figure, typically 60 to 70% for senior debt, occasionally pushing to 75% on stretched senior facilities.

One thing worth modelling carefully: interest and fees are typically rolled into the facility rather than paid during the build. That means the net proceeds available to you will be lower than the headline facility figure. Developers who model on the gross number without accounting for the interest roll often find the equity gap is bigger than they expected.

How drawdown works in practice

Once the facility is agreed and the first advance is made, typically covering land acquisition and mobilisation costs, subsequent tranches are released against build progress. The developer submits a drawdown request tied to an agreed milestone. An independent monitoring surveyor, appointed by the lender and paid for by the borrower, inspects the site and confirms the stage has been reached and costs are in line. If the report is clear, funds are released within a few days. Interest begins accruing on the new drawdown from the date of release.

What lenders are actually assessing

The criteria are well documented: GDV, loan to cost, developer experience, exit strategy, planning status. What's less discussed is how lenders weigh those factors in practice.

Two things consistently separate the applications that get strong terms from those that don't.

Track record specificity. Lenders want comparable experience, not just a general claim of having done development before. The strongest applications address the transferability of your experience directly rather than leaving the lender to join the dots.

Cost schedule credibility. A detailed cost schedule, prepared by a QS or reputable contractor with contingency clearly accounted for, signals that you know your numbers and have the right team around you. Presenting one that's already been put together properly does a lot of work in the application.

What lenders typically want to see: full planning permission in place, a detailed cost schedule, a clear exit strategy with comparable evidence, a professional team including architect, structural engineer and project manager, a developer CV showing comparable completed projects, an assets and liabilities statement, and Section 106 or CIL obligations accounted for in the appraisal.

Where the 2026 market sits

Lender appetite for development schemes is strong. The non-bank lender market has grown considerably. Challenger banks, specialist development lenders and family office capital are all active. For developers who default to going straight to a high street bank, this matters. The best terms on a given scheme often come from a lender most developers haven't heard of.

Why going direct to lenders costs more than it saves

A lot of developers assume cutting out a broker saves them money. On a development finance facility, it usually doesn't. Lender access, application quality and negotiation all matter. The development finance market has a long tail, and specialist lenders who don't advertise publicly won't be on your radar without someone with existing relationships putting your deal in front of them. Lenders will also tell you their standard terms but won't necessarily volunteer that there's room to move on arrangement fees, interest roll up or the drawdown schedule.

At Merryoaks, we've arranged over £274 million in property finance since 2021 across senior debt, stretched senior, mezzanine and equity. If you have a deal you're looking to fund, or you're in early stage planning and want to know what's achievable, speak to the team. Get in touch