Property Development Finance

Property development finance is a short-term loan for residential property developments, such as construction projects, and is usually advanced as a loan towards land purchase and a loan in stage payments for development costs in converting a property into flats.

SINCE 2004

What is property development finance?

If you’re looking to kickstart a rather large property development project or want to renovate a buy-to-let property, you might be exploring your property finance options. 

Property development finance is a short-term loan for residential property developments, such as construction projects, and is usually advanced as a loan towards land purchase and a loan in stage payments for development costs in converting a property into flats.

In other words, it is used for the purpose of funding a residential, commercial or mix-use property development. It’s a fairly broad category that covers term loans, mortgages, bridging loans and even personal loans. It refers to the large-scale funding of significant building or renovation works.

You might use it to fund a new residential housing project, workspace development or regeneration initiative. Development finance is likely the most appropriate form of property finance for ground-up developments, such as building a property from scratch. 

How property development finance works

If you want to invest in property and don’t have a load of cash lying around, then you’ll need property development finance. It’s a broad term that covers lots of different options, including various mortgages, business loans, and even unsecured personal loans. Eligibility can vary, some lenders need a fleshed-out business plan, while others will just look at your credit score, but to have the best chance of getting a good rate from a lender, you’ll need to make sure you have a well-planned investment strategy.

Lenders will also have to look at your Gross Development Value, which is is an estimate of the open market capital value or rental value the development is likely to have once it is complete. It may be calculated as part of an initial development appraisal and may then be continually assessed to help determine whether the project is likely to be, or has been profitable.

As you can see, the world of property development finance can be complex and somewhat confusing, so we will introduce you to the fundamentals here.

Property development finance options


This one is pretty straightforward – if you have a lot of money at hand, you can use it to buy property. This probably won’t be a viable option when you’re starting out, but it’s worth bearing in mind for future projects.

Buy-to-let mortgages

If you want to buy a property and rent it out, then a standard mortgage won’t be suitable – instead, you’ll require a buy-to-let mortgage. These have key differences from a conventional mortgage: they demand a higher deposit, come with larger interest charges, operate on an interest-only basis, and attract bigger fees.

Buy-to-sell mortgage

You also won’t be able to use a standard mortgage if you intend to purchase a property, do it up, and then sell it again. To do this, you’ll need a buy-to-sell or flexible mortgage, as this will let you sell a property shortly after buying it – something you can’t do with a standard mortgage. As you’d expect though, you pay for the privilege in the form of significantly elevated interest rates, bigger fees, and a much heftier deposit.

Bridging loans

Bridging loans have a short duration and charge high interest. They are commonly taken out by people who want to buy a new home but haven’t yet sold their existing one. In terms of property development, bridging loans are often used to buy a property, renovate it, and then sell, paying off both the interest and loan amount in the process. It’s vitally important to know that bridging loans are a form of secured loan, and so you’ll most likely need property or land that the loan can be secured against. A bridging loans lender will also demand a clear exit plan that explains how you will pay off the loan at the end of the term.

Property development finance

A broad term that covers both specialised loans for established property development companies and loans that cover heavy refurbishment. Acceptance and rates depend on your previous property development projects and your past track record and the strength of your business plan.

Personal loan

If you just need a bit of cash for a bit of light refurbishment or have inherited a property that needs a little TLC, then you might want to consider taking out an unsecured personal loan.

What if it’s the first time I’m applying for property development finance?

If you’re looking to take out property development finance for the first time, there are a few things to consider. Firstly, you should work out which property development finance option is most relevant to your circumstances.

For instance, if you want to borrow money to buy a property to rent out, you’ll require a buy-to-let mortgage.

A bridging loan, on the other hand, might be suitable if you want to buy a new home but haven’t sold your existing one, or if you want to purchase a property and renovate it (paying the full loan amount and interest upon the subsequent sale of the property).

Before committing to a property development project, conduct research into the local market you’re looking to purchase in. You might be considering setting up a limited company – if so, you should seek professional tax and legal advice.

Ground-up property development finance is designed for larger projects and covers the price of the land and part of the construction cost. Property development finance costs are usually around 70-80% of the build cost. The developer must source funding for the remainder.

For short-term refurbishment projects, a bridge loan could be the most suitable type of business finance to opt for. Bridging loans are designed for the short-term until the loan can be paid back or a longer-term type of finance is secured.

Large renovations, on the other hand, could be funded using longer-term bridging finance or a commercial mortgage.

Know how extensive the building works are going to be

It is really important to know how extensive your building project is going to be before you explore your finance options for refurbishment or renovation. To determine what type of finance you need, it’s useful to think of projects in three ways.

Light refurbishment

This is the most straightforward type of project, where in general the main changes are aesthetic rather than structural but may involve some internal work on floors, ceilings and walls.

Heavy refurbishment

As well as aesthetic changes, this could require moving internal walls, plumbing, or electrics, adding rooms and external walls, or even partial demolition and rebuilding.

Ground-up development

The most involved type of property project, starting with an empty plot of land, or a very heavy refurbishment/conversion (for example, when nothing remains but stonework).

How do property developers raise finance?

Property developers can bolster their chances of being able to raise finance in many ways. Getting planning permission is just one important step to make. Bear in mind that a robust application will also set you on a positive footing – fill in documents carefully.

How do I get started in property development?

Many property developers hold down a full-time job when starting out to guarantee a regular income. You’ll need to work out what type of property developer you want to be, e.g. commercial or residential, ground-up or light refurbishments.

You should also spend some time exploring opportunities and exit strategies, and learn how to leverage property development finance.

Can you get a loan for property development?

Yes – if you’ve got the right exit strategy in place and the lender deems you eligible, you can get a loan for property development.

The type of loan you get will depend on what you need the funds for. Auction finance, for instance, can help you to get a discounted property at auction. Our finance experts can help you identify the right type of finance when you enquire.

Always plan ahead

As you can see, property development is a complex area, especially when it comes to financing. Ultimately, the best first step to take when determining what type of finance you need is to assess how extensive the project is, how long it will take, and how much it is likely to cost — in both the best- and worst-case scenarios.

All successful and experienced property developers are good planners, and getting the right finance in place is a crucial ingredient in development success — whether you’re buying your company’s premises, or growing your rental property portfolio.

Get in Touch With Our Team Today

As one of the UK’s premier loan providers, we work with clients to ensure they have the funds and security to purchase another property. Whether it’s for business or residential purposes, our friendly team can discuss the flexible nature of our service and will therefore help you choose the correct terms.

We’re happy to discuss your current financial situation, including assets, equity and tell you more about the LTV calculator we use to determine your deposit and costs.

Our registered office in England is available to take your calls and arrange a free consultation. Any development finance loan solution you use through us will be fully authorised and regulated by the FCA.